DEF 14A 1 d184017ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

Filed by the Registrant   x

 

Filed by a Party other than the Registrant   ¨

 

Check the appropriate box:

 

¨

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

x

   Definitive Proxy Statement      

¨

   Definitive Additional Materials      

¨

   Soliciting Material Pursuant to §240.14a-12      

 

DREAMWORKS ANIMATION SKG, INC.

(Name of Registrant as Specified In Its Charter)

 

N/A

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

 

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

 

  (2) Aggregate number of securities to which transaction applies:

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4) Proposed maximum aggregate value of transaction:

 

 

  (5) Total fee paid:

 

 

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

  (3) Filing Party:

 

 

  (4) Date Filed:

 

 

 


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LOGO

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on June 2, 2016

 

To the Stockholders:

 

Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”) of DreamWorks Animation SKG, Inc., a Delaware corporation (“DreamWorks Animation” or the “Company”), will be held on Thursday, June 2, 2016 at 8:30 a.m., local time, at the Loew’s Hollywood Hotel, 1755 North Highland Avenue, Hollywood, California 90028 for the following purposes:

 

  1. To elect eight directors, all of such directors to serve for the ensuing year or until their successors are duly elected and qualified.

 

  2. To ratify the appointment of PricewaterhouseCoopers LLP as DreamWorks Animation’s independent registered public accounting firm for the year ending December 31, 2016.

 

  3. To approve the adoption of the Second Amended and Restated 2008 Omnibus Incentive Compensation Plan.

 

  4. To conduct an advisory vote to approve named executive officer compensation.

 

  5. To transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

 

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

 

Only holders of record of DreamWorks Animation’s common stock at the close of business on April 8, 2016 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. For 10 days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be available at the Corporate Secretary’s office, Campanile Building, 1000 Flower Street, Glendale, California 91201.

 

All stockholders are cordially invited to attend the Annual Meeting in person. An admission ticket as well as a form of personal identification are needed to enter the Annual Meeting. Stockholders whose shares are held in street name (the name of a bank, broker or other nominee) should bring with them a legal proxy or recent brokerage statement or letter from the street name holder confirming their beneficial ownership of shares. Any stockholder attending the Annual Meeting may vote in person even if he or she has returned a proxy card.

 

DreamWorks Animation’s Proxy Statement is attached hereto. Financial and other information concerning DreamWorks Animation is contained in its Annual Report to Stockholders for the year ended December 31, 2015.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, we urge you to authorize your proxy as soon as possible. You may vote by proxy or the Internet or by telephone or, if you received the proxy materials by mail, you may also vote by mail. Your vote will ensure your representation at the Annual Meeting regardless of whether you attend in person.

 

By Order of the Board of Directors,

 

LOGO

Andrew Chang

General Counsel and Corporate Secretary

 

Glendale, California

April 22, 2016


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TABLE OF CONTENTS

 

     Page  

PROCEDURAL MATTERS

     1   

General

     1   

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on Thursday, June 2, 2016

     1   

Record Date; Stockholders Entitled to Vote

     1   

The Board’s Recommendations

     2   

Proxies; Revocation of Proxies

     2   

Quorum; Abstentions; Broker Non-Votes

     2   

Solicitation of Proxies

     3   

Deadline for Receipt of Stockholder Proposals

     3   

Electronic Access

     4   

PROPOSAL NO. 1—ELECTION OF EIGHT DIRECTORS

     5   

Nominees

     5   

Required Vote

     8   

Recommendation

     8   

Director Independence

     8   

Meetings and Committees

     10   

Board Leadership Structure

     13   

Board of Directors’ Oversight of Risk

     13   

Director Nominations

     14   

Communications with the Board of Directors

     15   

Code of Business Conduct and Ethics

     15   

Director Compensation

     15   

Compensation Committee Interlocks and Insider Participation

     17   

PROPOSAL NO. 2—RATIFICATION AND APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     18   

Required Vote

     18   

Recommendation

     18   

Independent Registered Public Accounting Firm Fees

     18   

Audit Fees

     18   

Audit-Related Fees

     19   

Tax Fees

     19   

All Other Fees

     19   

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

     19   

PROPOSAL NO. 3—APPROVE THE ADOPTION OF THE SECOND AMENDED AND RESTATED 2008 OMNIBUS INCENTIVE COMPENSATION PLAN

     20   

General

     20   

Summary of the Second Amended 2008 Plan

     21   

Certain Federal Tax Aspects of the Second Amended 2008 Plan

     27   

Securities Authorized for Issuance Under Equity Compensation Plans

     28   

New Plan Benefits

     29   

Additional Information Regarding the Plan

     30   

Required Vote

     30   

Recommendation

     30   

PROPOSAL NO. 4—AN ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

     31   

Required Vote

     31   

Recommendation

     31   


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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     32   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     36   

COMPENSATION DISCUSSION AND ANALYSIS

     37   

Executive Summary

     37   

How We Determine Executive Compensation

     40   

Analysis of Executive Compensation Elements

     42   

2015 Compensation Actions

     45   

2016 Compensation Actions

     49   

Tax Implications

     51   

Other Items

     51   

Compensation Committee Charter

     51   

COMPENSATION COMMITTEE REPORT

     52   

EXECUTIVE COMPENSATION INFORMATION

     53   

Summary Compensation Table

     53   

Grants of Plan-Based Awards

     55   

Outstanding Equity Awards at Fiscal Year-End

     56   

Options Exercised and Stock Vested

     58   

Nonqualified Deferred Compensation

     59   

Estimated Executive Benefits and Payments Upon Termination or Change in Control

     60   

Executive Employment Agreements

     62   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     66   

Related Party Transaction Policy

     66   

Vessel Content and Referral Agreements

     66   

Use of Private Aircraft

     66   

License Agreement with Entities Controlled by Steven Spielberg

     66   

Services from Entities Controlled by Steven Spielberg

     67   

Separation Agreement Between DreamWorks Studios and DreamWorks Animation

     67   

Vulcan Stockholder Agreement

     69   

Class B Stockholder Agreement

     70   

Registration Rights Agreement

     72   

Tax Receivable Agreement

     73   

Share Withholding Arrangement

     73   

REPORT OF THE AUDIT COMMITTEE

     74   

OTHER MATTERS

     75   

ANNEX A

     A-1   


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DREAMWORKS ANIMATION SKG, INC.

 

 

 

PROXY STATEMENT

FOR

2016 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

PROCEDURAL MATTERS

 

General

 

DreamWorks Animation SKG, Inc., a Delaware corporation (“DreamWorks Animation” or the “Company”), is providing these proxy materials in connection with the solicitation by its board of directors (the “Board of Directors” or the “Board”) of proxies to be voted at its Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, June 2, 2016 at 8:30 a.m., local time, and at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the Loew’s Hollywood Hotel, 1755 North Highland Avenue, Hollywood, California 90028. DreamWorks Animation’s headquarters is located at 1000 Flower Street, Glendale, California 91201 and the telephone number at that location is (818) 695-5000.

 

This Proxy Statement and the enclosed proxy card, together with DreamWorks Animation’s Annual Report on Form 10-K for the year ended December 31, 2015, are being mailed to stockholders beginning on or about April 26, 2016. References in this Proxy Statement to the “Company,” “we,” “us” and “our” refer to DreamWorks Animation.

 

Stockholders are cordially invited to attend DreamWorks Animation’s Annual Meeting. An admission ticket as well as a form of personal identification are needed to enter the Annual Meeting. Stockholders whose shares are held in street name (the name of a bank, broker or other nominee) should bring with them a legal proxy or recent brokerage statement or letter from the street name holder confirming their beneficial ownership of shares.

 

DreamWorks Animation will offer a live audio webcast of the Annual Meeting. Stockholders choosing to listen to the audio webcast may do so by accessing the link on www.DreamWorksAnimation.com/webcast on the morning of the meeting and completing a short registration process. Stockholders listening to the audio webcast will not be able to submit questions or otherwise participate in the Annual Meeting. A webcast replay of the meeting will be available until July 31, 2016 (or such later date that the Company makes the replay available).

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on Thursday, June 2, 2016

 

This proxy statement and our 2015 Annual Report to Stockholders are available at www.envisionreports.com/dwa.

 

Record Date; Stockholders Entitled to Vote

 

Only holders of record of DreamWorks Animation’s Class A common stock, par value $0.01 per share (the “Class A Stock”), and Class B common stock, par value $0.01 per share (the “Class B Stock” and, together with the Class A Stock, the “Common Stock”), at the close of business on April 8, 2016 are entitled to notice of and to vote at the Annual Meeting. Each share of Class A Stock entitles the holder to one vote and each share of Class B Stock entitles the holder to 15 votes, in each case with respect to each matter presented to stockholders on which the holders of Common Stock are entitled to vote. The holders of Class A Stock and Class B Stock are not

 

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entitled to cumulate their votes in the election of directors. Except as otherwise provided in DreamWorks Animation’s restated certificate of incorporation or required by law, all matters to be voted on by DreamWorks Animation’s stockholders must be approved by a majority, or in the case of election of directors, by a plurality, of the votes entitled to be cast by all shares of Common Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class.

 

As of April 8, 2016, there were approximately 78,698,244 shares (having a total of 78,698,244 votes) of Class A Stock and 7,838,731 shares (having a total of 117,580,965 votes), of Class B Stock outstanding. For information regarding security ownership by management and by the beneficial owners of more than 5% of DreamWorks Animation’s Common Stock, see Security Ownership of Certain Beneficial Owners and Management.

 

The Board’s Recommendations

 

If you authorize your proxy electronically or send a properly executed proxy without specific voting instructions, your shares represented by that proxy will be voted as unanimously recommended by the Board of Directors:

 

   

FOR the election of each of the director nominees;

 

   

FOR ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2016; and

 

   

FOR the approval of the adoption of the Second Amended and Restated 2008 Omnibus Incentive Compensation Plan; and

 

   

FOR the approval, on an advisory basis, of named executive officer compensation as disclosed in these proxy materials.

 

Proxies; Revocation of Proxies

 

All shares entitled to vote and represented by properly executed proxies received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies. If no instructions are indicated on a properly executed proxy, the shares represented by that proxy will be voted as recommended by the Board of Directors. If any other matters are properly presented for consideration at the Annual Meeting, the persons named in the enclosed proxy and acting thereunder will vote on those matters in their discretion. DreamWorks Animation does not currently anticipate that any other matters will be raised at the Annual Meeting.

 

A stockholder may revoke any proxy given pursuant to this solicitation at any time before it is voted by delivering to DreamWorks Animation’s Corporate Secretary a written notice of revocation or a duly executed proxy bearing a date later than that of the previously submitted proxy, or by attending the Annual Meeting and voting in person.

 

Quorum; Abstentions; Broker Non-Votes

 

The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by all shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Such stockholders are counted as present at the meeting if they are present at the Annual Meeting or have properly submitted a proxy card.

 

With respect to Proposal Number 1 (the election of directors), stockholders may vote in favor of or withhold their votes for each nominee. While stockholders cannot choose to “abstain” when voting on this proposal, a withhold vote for a nominee is the equivalent of abstaining. The eight nominees receiving the greatest number of votes cast for the election of directors by shares of Class A and Class B Stock, voting together as a single class,

 

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entitled to vote and present in person or by proxy at the Annual Meeting will be elected directors. With respect to Proposal Numbers 2, 3 and 4, stockholders may vote in favor of or against the proposal, or abstain from voting. Abstentions will be treated as the equivalent of a vote against the proposal for the purpose of determining whether a proposal has been adopted or approved on an advisory basis, as applicable. The affirmative vote of the majority of votes cast by holders of Class A and Class B Stock, voting together as a single class, is required for the adoption of Proposal Numbers 2 and 3 and advisory approval of Proposal Number 4. Although our Board of Directors intends to carefully consider the stockholder votes on Proposal Number 4, those votes will not be binding on the Board of Directors and are advisory in nature.

 

If your shares are held in “street name” (the name of a bank, broker or other nominee), the nominee may require your instructions in order to vote your shares. If you give your nominee instructions, your shares will be voted as directed. If you do not give your nominee instructions and the proposal is considered “routine,” brokers are generally permitted to vote your shares in their discretion. Proposal Number 2 in this Proxy Statement (ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountants) will be considered routine. For all other proposals, brokers are not permitted to vote your shares in their discretion. Proposal Numbers 1, 3 and 4 will not be considered routine and therefore brokers will not have discretionary authority to vote on them. A “broker non-vote” occurs when a broker holding shares for a beneficial owner has not received voting instructions from the beneficial owner and does not have discretionary authority to vote those shares. Shares that constitute broker non-votes will be counted as present at the Annual Meeting for the purpose of determining a quorum, but will not be considered entitled to vote on Proposal Numbers 1, 3 and 4 and will have the same effect as an abstention.

 

Solicitation of Proxies

 

The expense of preparing, printing and mailing the Proxy Statement and the proxies solicited hereby will be borne by DreamWorks Animation. DreamWorks Animation may reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of DreamWorks Animation’s directors, officers and regular employees, without additional compensation, personally or by telephone, letter or facsimile.

 

Proxies and ballots will be received and tabulated by Computershare, DreamWorks Animation’s inspector of elections for the Annual Meeting.

 

Deadline for Receipt of Stockholder Proposals

 

Proposals Pursuant to Rule 14a-8.    Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), stockholders may present proper proposals for inclusion in our Proxy Statement and for consideration at our next annual meeting of stockholders. To be eligible for inclusion in our 2017 Proxy Statement, your proposal must be received by us no later than December 23, 2016, and must otherwise comply with Rule 14a-8. While the Board of Directors will consider stockholder proposals, we reserve the right to omit from our Proxy Statement stockholder proposals that we are not required to include under the Exchange Act, including Rule 14a-8.

 

Proposals and Nominations Pursuant to Our Bylaws.    Under our Bylaws, in order to nominate a director or bring any other business before the stockholders at the 2017 Annual Meeting of Stockholders, you must comply with the procedures described below. In addition, you must notify us in writing and such notice must be delivered to our Secretary no earlier than February 2, 2017, and no later than March 4, 2017. The Company’s management may exercise discretionary voting authority with respect to any stockholder proposal that is not submitted pursuant to Rule 14a-8 for inclusion in the Proxy Statement for the 2017 Annual Meeting of Stockholders if such proposal is not received by the Company within such time period.

 

Our Bylaws provide that a stockholder’s nomination must contain the following information about the nominee: (1) all information relating to such person that is required to be disclosed in solicitations of proxies for

 

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election of directors in an election contest, or is otherwise required pursuant to Regulation 14A under the Exchange Act; and (2) such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected. We may require any proposed nominee to furnish additional information as we may reasonably require in order to determine such person’s eligibility to serve as a director, including appropriate biographical information to permit the Board of Directors to determine whether such nominee meets the qualification and independence standards adopted by the Board of Directors. Any candidates recommended by stockholders for nomination by the Board of Directors will be evaluated in the same manner that nominees suggested by Board members, management or other parties are evaluated.

 

Our Bylaws provide that a stockholder’s notice of a proposed business item must include: (1) a brief description of the business desired to be brought before the meeting; (2) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend our Bylaws, the language of the proposed amendments); (3) the reasons for conducting such business at the meeting; and (4) any material interest of the stockholder making the proposal in such business.

 

In addition, our Bylaws provide that a stockholder giving notice of a nomination or a proposed business item must include the following information in the notice: (1) the name and address of the stockholder; (2) the class and number of shares of our capital stock which are owned beneficially and of record by the stockholder; (3) a representation that the stockholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination or business item; and (4) a representation whether the stockholder intends to solicit proxies from stockholders in support of such nomination or proposed business item.

 

You may write to our Secretary at our principal executive offices, 1000 Flower Street, Glendale, California 91201, to deliver the notices discussed above and for a copy of the relevant Bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates pursuant to the Bylaws.

 

Electronic Access

 

In addition to the website address listed in the section entitled Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on Thursday, June 2, 2016, this Proxy Statement and DreamWorks Animation’s 2015 Annual Report may be viewed online at www.DreamWorksAnimation.com. Stockholders of record may elect to receive future annual reports and Proxy Statements electronically by following the instructions provided in the enclosed proxy if such stockholder is voting by Internet. Such stockholders’ choice will remain in effect until they notify DreamWorks Animation by mail that they wish to resume mail delivery of these documents. Stockholders holding their Common Stock through a bank, broker or another holder of record should refer to the information provided by that entity for instructions on how to elect this option.

 

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PROPOSAL NO. 1

ELECTION OF EIGHT DIRECTORS

 

Nominees

 

DreamWorks Animation’s restated certificate of incorporation currently authorizes a range of three to 15 directors, currently set at 12, to serve on the Board of Directors. At the Annual Meeting, eight persons will be elected as members of the Board of Directors, each to serve until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified. The Nominating and Governance Committee has nominated, and the Board of Directors has designated, the eight persons listed below for election at the Annual Meeting. Although the maximum number of directors is currently set at 12, the Board of Directors believes that the current number of eight directors allows for easier coordination while still allowing the Company to benefit from the various directors’ different expertise and experience. Stockholders will not be able to vote for a greater number of nominees at the Annual Meeting than eight nominees.

 

In the event that any nominee of DreamWorks Animation is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director.

 

On October 22, 2015, Mary Agnes (“Maggie”) Wilderotter was elected to the Board by the Board of Directors. She was recommended as a nominee by the Company’s Chief Executive Officer and by the Nominating and Governance Committee.

 

The name and certain information regarding each nominee are set forth below. There are no family relationships among directors or executive officers of DreamWorks Animation. Ages are as of April 8, 2016.

 

Name

   Age     

Position

Jeffrey Katzenberg

     65       Chief Executive Officer and Director

Mellody Hobson

     47       Chairman of the Board of Directors

Harry “Skip” Brittenham

     74       Director

Thomas E. Freston

     70       Director

Michael Montgomery

     61       Director

Lucian Grainge

     56       Director

Jason Kilar

     44       Director

Mary Agnes “Maggie” Wilderotter

     61       Director

 

Jeffrey Katzenberg—Chief Executive Officer and Director.    Mr. Katzenberg has served as our Chief Executive Officer and member of our Board of Directors since October 2004. DreamWorks Animation is the largest animation studio in the world and has released a total of 32 animated feature films, which have enjoyed a number of critical and commercial theatrical successes. These include the franchise properties Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon. Mr. Katzenberg co-founded and was a principal member of DreamWorks LLC (“Old DreamWorks Studios”) from its founding in October 1994 until its sale to Paramount in January 2006. Prior to founding Old DreamWorks Studios, Mr. Katzenberg served as chairman of The Walt Disney Studios from 1984 to 1994. As chairman, he was responsible for the worldwide production, marketing and distribution of all Disney filmed entertainment, including motion pictures, television, cable, syndication, home entertainment and interactive entertainment. During his tenure, the studio produced a number of live-action and animated box office hits, including Who Framed Roger Rabbit, The Little Mermaid, Beauty and the Beast, Aladdin and The Lion King. Prior to joining Disney, Mr. Katzenberg was president of Paramount Studios. He also serves on the boards or as a trustee of the following organizations: AIDS Project Los Angeles, American Museum of the Moving Image, Cedars-Sinai Medical Center, California Institute of the Arts, Geffen Playhouse, Michael J. Fox Foundation for Parkinson’s Research, Motion Picture & Television Fund Foundation,

 

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University of Southern California School of Cinematic Arts and The Simon Wiesenthal Center. He previously served as a director of Zynga Inc. from April 2011 until June 2014. With over 35 years of experience in the entertainment industry, Mr. Katzenberg brings an unparalleled level of expertise and knowledge of the Company’s core business to the Board. Among the many accomplishments of his lengthy career, he has been responsible for the production of many of the most successful animated films of all time.

 

Mellody Hobson—Chairman of the Board of Directors.    Ms. Hobson became Chairman of the Board in October 2012 and has served as a director since October 2004. Ms. Hobson has served as the president of Ariel Investments, LLC, a Chicago-based investment management firm, since 2004. She also has served as president and a director of its sole managing member, Ariel Capital Management Holdings, Inc. since 2000. She is also the president of Ariel Investment Trust, an open-end management investment company, and has served as a trustee since 1993 and as chairman of the board of trustees since 2006. She previously served as senior vice president and director of marketing at Ariel Capital Management, Inc. from 1994 to 2000, and as vice president of marketing at Ariel Capital Management, Inc. from 1991 to 1994. Ms. Hobson is a graduate of Princeton University where she received a Bachelor of Arts from the Woodrow Wilson School of International Relations and Public Policy. Ms. Hobson works with a variety of civic and professional institutions, including serving as Chairman of After School Matters and as a board member of The George Lucas Educational Foundation, the George Lucas Family Foundation, the Lucas Museum of Narrative Arts, the Chicago Public Education Fund, the Sundance Institute (as emeritus trustee) and is on the executive committee of the Investment Company Institute’s board of governors. She has also served as a director of Estee Lauder and Starbucks since 2004 and 2005, respectively, and previously served on the board of directors of Groupon from June 2011 to May 2014. Ms. Hobson possesses valuable knowledge of corporate governance and similar issues from her service on several public companies’ boards of directors. She also has significant operational and financial expertise as the president of a large investment company.

 

Harry “Skip” Brittenham—Director.    Mr. Brittenham has served as a member of the Board of Directors since May 2008. He is a senior partner with the entertainment law firm of Ziffren, Brittenham LLP, which was founded in 1978. Mr. Brittenham currently serves on the board of directors of Conservation International. Mr. Brittenham received a B.S. from the United States Air Force Academy and a J.D. from the University of California, Los Angeles. Mr. Brittenham possesses unique insight and expertise regarding the entertainment industry gained from his over 35 years of experience representing many of the entertainment industry’s leading talent.

 

Thomas E. Freston—Director.    Mr. Freston has served as a member of the Board of Directors since September 2007. Since December 2006, Mr. Freston has been a principal with firefly3, a consulting and investment company. Mr. Freston served as the President and Chief Executive Officer of Viacom Inc. from January 1, 2006 until his resignation in September 2006. At Viacom, he oversaw Viacom’s cable network properties (which include MTV, Nickelodeon, BET, Comedy Central and many other networks), Paramount Pictures and Famous Music (publishing). He also served on the Board of Viacom from September 2005 until September 2006. Previously, he was Co-President and Co-Chief Operating Officer of Viacom’s predecessor entity since June 2004. Prior to that, Mr. Freston served as Chairman and Chief Executive Officer of MTV Networks since 1987. Mr. Freston joined MTV Networks in 1980 and was one of the founding members of the team that launched MTV: Music Television. Among other things, he created MTV’s classic “I want my MTV” ad campaign. Mr. Freston is an honorary trustee of the American Museum of Natural History. Mr. Freston possesses significant knowledge regarding the entertainment industry as a result of more than 30 years of experience with several media and entertainment companies. His experience includes broad operational responsibilities as the president of a large, diversified media and entertainment business.

 

Michael J. Montgomery—Director.    Mr. Montgomery has served as a director since July 2006. Mr. Montgomery is the founder and Chief Executive Officer of Montgomery Advisory LLC, which invests in and advises early stage companies, primarily in digital media. He also is a lecturer at the UCLA Anderson School of Business. Through June 2013, he served as president of Montgomery & Co., a media and entertainment

 

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investment banking firm, and was head of the firm’s investment banking practice. Prior to joining the predecessor company to Montgomery & Co. in 1999, Mr. Montgomery was the chief executive officer at Sega GameWorks, a joint venture between Sega, Universal Studios and DreamWorks Studios. Before that, Mr. Montgomery was a senior executive at DreamWorks Studios from 1995 until 1999. Before joining DreamWorks Studios, Mr. Montgomery spent approximately eight years with The Walt Disney Company and its affiliates, where he held a number of senior positions including managing director and chief financial officer of EuroDisney and treasurer of Walt Disney Company. Mr. Montgomery is currently a director of Synacor, Inc. and serves as the chairman of its audit committee. Mr. Montgomery received his M.B.A. from the Amos Tuck School at Dartmouth College, where he also received a B.A. degree as Rufus Choate Scholar with magna cum laude honors. In his position overseeing Montgomery & Co., among other things, Mr. Montgomery has also gained unique experience and valuable insight regarding the Internet and other emerging media businesses. Mr. Montgomery also has prior operational experience with a large media and entertainment business.

 

Lucian Grainge—Director.    Mr. Grainge has served as a member of the Board of Directors since May 2013. Mr. Grainge is currently the Chairman and Chief Executive Officer of Universal Music Group, a music company that is comprised of recorded music and music publishing businesses, positions he has held since March 2011 and January 2011, respectively. Prior to that, Mr. Grainge held positions of increasing responsibility within the Universal Music Group organization, including serving as the Chairman and Chief Executive Officer of Universal Music UK from 2001 until 2005 and as the Chairman and Chief Executive Officer of Universal Music Group International from 2005 until February 2010. Mr. Grainge previously served as a member of the Board of Directors of Activision Blizzard, Inc. (until October 2013). In 2012, Mr. Grainge was appointed a UK Business Ambassador with a special remit from British Prime Minister David Cameron on global media and entertainment. In 2011, Mr. Grainge was named a Trustee of the American Friends of the Royal Foundation of the Duke and Duchess of Cambridge and Prince Harry. Mr. Grainge serves on the Board of Trustees of Northeastern University. As a result of more than 25 years of experience in the music and entertainment businesses, Mr. Grainge brings extensive knowledge of the entertainment industry to the Board. Mr. Grainge is also able to provide the perspective of an active chief executive officer of a large entertainment company with worldwide operations.

 

Jason Kilar—Director.    Mr. Kilar has served as a member of the Board of Directors since May 2013. Mr. Kilar is the Chief Executive Officer and founder of Vessel, a next-generation online video service. Prior to creating and developing Vessel, Mr. Kilar served as the founding Chief Executive Officer of Hulu, an online television service from 2007 until April 2013. From 1997 until 2006, Mr. Kilar served in a variety of key leadership positions with Amazon.com, including as Senior Vice President of Worldwide Application Software and, prior to that, Vice President and General Manager of Amazon.com’s domestic books, music and video businesses. Mr. Kilar serves as a member of the Board of Directors of Brighter.com. Mr. Kilar graduated from Harvard Business School and The University of North Carolina at Chapel Hill. Mr. Kilar has extensive experience in building and operating online television and video services. As a result, he provides valuable insight and counsel for the Company’s efforts to exploit its content in new media forms. He also possesses practical operational experience as a result of his positions at Vessel, Hulu and Amazon.com.

 

Mary Agnes “Maggie” Wilderotter—Director.    Mrs. Wilderotter has served as a member of the Board of Directors since October 2015. Mrs. Wilderotter was the Executive Chairman of Frontier Communications until April 2016, a post she had held since April 2015, having previously served as its Chairman and Chief Executive Officer from 2006 until 2015. Previously, Mrs. Wilderotter was Senior Vice President of Global Business Strategy and ran the Worldwide Public Sector at Microsoft. Before this, she was President and CEO of Wink Communications Inc., Executive Vice President of National Operations for AT&T Wireless Services Inc., Chief Executive Officer of AT&T’s Aviation Communications Division and a Senior Vice President of McCaw Cellular Communications Inc. Mrs. Wilderotter currently serves as a director of Costco Wholesale Corporation, Hewlett Packard Enterprise Company and Juno Therapeutics, Inc. Mrs. Wilderotter also served as a director of The Procter and Gamble Company from 2009 through 2015 and as a director of the Xerox Corporation from 2006 through 2015. Additionally, from October 2012 to November 2014 Mrs. Wilderotter served as Chairman of

 

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the National Security Telecommunications Advisory Committee, and from October 2010 to October 2012 she was its Vice Chairman. Mrs. Wilderotter currently serves on the President’s Commission on Enhancing National Cybersecurity. Mrs. Wilderotter also serves on the boards, committees or is a member of the following organizations: the Conference Board, Catalyst, Women in America, the WomenCorporateDirectors Foundation, the Business Council and the Committee of 200. In 2014, she chaired the Blue Ribbon Committee on Board Strategy for the National Associate of Corporate Directors. Mrs. Wilderotter holds a bachelor’s degree in economics from the College of the Holy Cross. In 2014, she was awarded an Honorary Doctor of Engineering degree, honoris causa, from the Stevens Institute of Technology. Mrs. Wilderotter has extensive knowledge and broad experience as both an executive officer and a board member at a number of diverse companies in media, entertainment, internet access and technology.

 

Required Vote

 

The eight nominees receiving the highest number of affirmative votes cast at the Annual Meeting by holders of Class A and Class B Stock entitled to vote on the election of directors, voting together as a single class, shall be elected as directors.

 

Recommendation

 

The Board of Directors unanimously recommends that stockholders vote “FOR” the election of the nominees listed above.

 

Director Independence

 

The Board of Directors has adopted Director Independence Standards to assist in its determination of director independence. To be considered “independent” for purposes of these standards, the Board of Directors must determine that the director has no material relationship with DreamWorks Animation other than as a director. In each case, the Board of Directors broadly considers all relevant facts and circumstances and applies the following standards. In addition, the Board of Directors applies the independence standards set by the NASDAQ, which are included in the standards set forth below.

 

A director will not be considered “independent” if, within the preceding three years:

 

   

The director was or is an employee, or an immediate family member of the director was or is an executive officer, of DreamWorks Animation; or

 

   

The director, or an immediate family member of the director, received more than $120,000 per year in direct compensation from DreamWorks Animation, other than director fees and committee fees and pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service with DreamWorks Animation); except that compensation received by an immediate family member of the director for services as a non-executive employee of DreamWorks Animation need not be considered in determining independence under this test; or

 

   

The director was affiliated with or employed by, or an immediate family member of the director was affiliated with or employed in a professional capacity by, a present or former internal or external auditor of DreamWorks Animation; or

 

   

The director, or an immediate family member of the director, was or is employed as an executive officer of another company where any of DreamWorks Animation’s present executives at the same time serves or served on that company’s compensation committee; or

 

   

The director is employed by another company, or an immediate family member of the director is a current executive officer of any such company, that makes payments to, or receives payments from, DreamWorks Animation for property or services in an amount which, in any single fiscal year, exceeds

 

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the greater of $200,000 or 5% of such other company’s consolidated gross revenues. In applying this test, both the payments and the consolidated gross revenues to be measured will be those reported in the last completed fiscal year. This test applies solely to the financial relationship between DreamWorks Animation and the director’s (or immediate family member’s) current employer; the former employment of the director or immediate family member need not be considered.

 

The following relationships will not, by themselves, be considered to be material relationships that would impair a director’s independence:

 

   

Commercial Relationship: If a director of DreamWorks Animation is an executive officer or an employee, or an immediate family member of the director is an executive officer, of another company that makes payments to, or receives payments from, DreamWorks Animation for property or services in an amount which, in any single fiscal year, does not exceed the greater of $200,000 or 5% of such other company’s consolidated gross revenues; or

 

   

Indebtedness Relationship: If a director of DreamWorks Animation is an executive officer of another company that is indebted to DreamWorks Animation, or to which DreamWorks Animation is indebted, and the total amount of either company’s indebtedness to the other is less than 2% of the consolidated assets of the company where the director serves as an executive officer; or

 

   

Equity Relationship: If a director is an executive officer of another company in which DreamWorks Animation owns a common stock interest and the amount of the common stock interest is less than 5% of the total shareholders’ equity of the company where the director serves as an executive officer; or

 

   

Charitable Relationship: If a director, or an immediate family member of the director, serves as a director, officer or trustee of a charitable organization and DreamWorks Animation’s contributions to the organization in any single fiscal year are less than the greater of $200,000 or 5% of that organization’s gross revenues.

 

For relationships not covered above as to which the Board of Directors believes a director may nevertheless be independent, the determination of whether the relationship is material or not, and therefore whether the director would be independent, is made by the directors who satisfy the independence tests set forth above.

 

For the purposes of these standards, an “immediate family member” includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than domestic employees) who shares such person’s home. However, when applying the independence tests described above, the Board of Directors need not consider individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or have become incapacitated.

 

The Board of Directors has determined that each of Harry Brittenham, Thomas Freston, Lucian Grainge, Mellody Hobson, Jason Kilar, Michael Montgomery and Maggie Wilderotter is an independent director. Each of these directors meets the independence requirements adopted by the Board of Directors as set forth above and has no other material relationships with DreamWorks Animation that the Board of Directors, after considering all relevant facts and circumstances, believes would interfere with the exercise of independent judgment in carrying out such director’s responsibilities.

 

In making its determination that Mr. Grainge qualifies as an independent director, the Board of Directors noted that the Company and Universal Music Group (“UMG”), of which Mr. Grainge is the chief executive officer, from time to time make payments to each other in connection with the licensing of music that is owned by the other company (or for which the other company serves as the music publisher). In addition, the Board of Directors noted that UMG has served as the music publisher for the Company’s Classic Media business (which the Company acquired in August 2012) and began serving as the music publisher for all of the Company’s business in 2014. Finally, UMG and one of the Company’s subsidiaries, AwesomenessTV, have formed two

 

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music-related joint ventures. However, given that the payments that each company made to the other company represented a small amount of the receiving company’s revenues in 2015, the Board of Directors concluded that these relationships did not affect Mr. Grainge’s status as an independent director.

 

In making its determination that Mr. Brittenham qualifies as an independent director, the Board of Directors noted that Ziffren Brittenham, a law firm of which Mr. Brittenham is a senior partner, previously owned less than 5% of the equity of ATV prior to its acquisition by the Company and, pursuant to the terms of the acquisition agreement for ATV (as amended from time to time, the “ATV Agreement”), received its pro rata share of contingent consideration paid under the terms of the ATV Agreement in 2014. However, given the small ownership stake of Mr. Brittenham’s law firm in ATV prior to the acquisition and the fact that his law firm received acquisition proceeds solely on a pro rata basis in respect of its prior ownership of ATV equity and not tied in any way to Mr. Brittenham’s continued service to the Company or actions he might take as a director of the Company, the Board of Directors concluded that this relationship does not affect Mr. Brittenham’s status as an independent director. The Board of Directors also noted Mr. Brittenham’s law firm often represents entertainment industry clients who appear in the Company’s films and other properties. However, given that the amounts received by Mr. Brittenham’s firm for representing such clients represented a small amount of his firm’s revenues, the Board of Directors concluded that this relationship does not affect his status as an independent director.

 

In making its determination that Mrs. Wilderotter qualifies as an independent director, the Board of Directors noted that Frontier Communications (“Frontier”), for which Mrs. Wilderotter served as the Executive Chairman until April 2016, from time to time makes payments to the Company indirectly through the Company’s relationships with its distributors Fox and Paramount with respect to video-on-demand screenings of the Company’s feature films. However, given that the relationship is indirect and passive, and the amount of revenues received from Frontier by Fox and Paramount in 2015 were immaterial, the Board of Directors concluded that these relationships did not affect Mrs. Wilderotter’s status as an independent director.

 

Meetings and Committees

 

During 2015, the Board of Directors held a total of six meetings (including regularly scheduled and special meetings). DreamWorks Animation’s Bylaws provide that, unless otherwise determined by the Board of Directors, no director is eligible for re-election unless he or she has attended at least 75% of the total number of meetings of the Board of Directors and any committees of which he or she is a member that are held during such director’s then-current term. Based upon attendance as of the date of this Proxy Statement, the Company currently expects that every incumbent director will have attended at least 75% of the total number of meetings of the Board of Directors and any committees of which he or she is a member during the term that began on May 26, 2015, except for Mr. Grainge, who will have attended approximately 59% of such meetings. During the calendar year 2015, no incumbent director attended fewer than 75% of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees on which he or she served, other than Mr. Freston and Mr. Grainge, who attended approximately 73% and 64%, respectively, of such meetings.

 

The Board of Directors has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The Board of Directors has approved a charter for each of these committees. Copies of the charters for each committee and DreamWorks Animation’s Corporate Governance Guidelines and Director Independence Standards can be found on DreamWorks Animation’s website at http://www.DreamWorksAnimation.com. These materials are also available in print to any stockholder upon request made in writing to DreamWorks Animation, 1000 Flower Street, Glendale, CA 91201, Attention: Corporate Secretary.

 

DreamWorks Animation’s Corporate Governance Guidelines provide that independent directors will regularly meet without the Chief Executive Officer. The Company’s independent directors meet regularly in executive sessions without Mr. Katzenberg. These meetings are usually led by the Chairman of the Board. The chairs of the Audit and Compensation Committees may chair executive sessions of the independent directors at which the principal items to be considered are within the scope of the committee chair’s authority.

 

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DreamWorks Animation invites, but does not require, its directors to attend the Annual Meeting of Stockholders. In 2015, two directors attended the Annual Meeting.

 

Audit Committee

 

Number of Members:

   3

Members:

  

Michael Montgomery, Chairman

Harry “Skip” Brittenham

Jason Kilar

Number of Meetings in 2015:

   4

Functions:

   The Audit Committee is responsible for, among other things:

 

   

overseeing management’s maintenance of the reliability and integrity of DreamWorks Animation’s accounting policies and financial reporting and disclosure practices;

 

   

overseeing management’s establishment and maintenance of processes to assure that an adequate system of internal control is functioning;

 

   

overseeing management’s establishment and maintenance of processes to assure DreamWorks Animation’s compliance with all applicable laws, regulations and corporate policy;

 

   

reviewing DreamWorks Animation’s annual and quarterly financial statements prior to their filing and prior to the release of earnings; and

 

   

reviewing the performance and qualifications of DreamWorks Animation’s independent accountants and making determinations regarding the appointment or termination of its independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants.

 

The Board of Directors has determined that each of Mr. Montgomery, Mr. Brittenham and Mr. Kilar qualifies as an audit committee financial expert, as such term is defined by the Securities and Exchange Commission (“SEC”) in Item 407 of Regulation S-K. Each of these directors has extensive financial and accounting expertise. Mr. Montgomery currently serves on the audit committee of one other public company. The Board of Directors has determined that such simultaneous service would not impair Mr. Montgomery’s ability to effectively serve on DreamWorks Animation’s Audit Committee. As mentioned above, the Board of Directors has also determined that each of the Audit Committee members is independent under the Company’s Director Independence Standards, under the independence standards set by the NASDAQ and under the independence standards set for audit committee members pursuant to Rule 10A-3 under the Securities Exchange Act of 1934. For a further description of the experience and qualifications of our Audit Committee members, see Nominees.

 

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Compensation Committee

 

Number of Members:

   3

Members:

  

Mellody Hobson, Chair

Mary Agnes “Maggie” Wilderotter

Lucian Grainge

Number of Meetings in 2015:

   5

Functions:

   The Compensation Committee is responsible for, among other things:

 

   

reviewing and approving the compensation of our executive officers;

 

   

reviewing key employee compensation policies, plans and programs;

 

   

monitoring performance and compensation of DreamWorks Animation’s employee-directors, officers and other key employees;

 

   

preparing recommendations and periodic reports to the Board of Directors concerning these matters; and

 

   

functioning as a committee of the Board of Directors that administers DreamWorks Animation’s incentive compensation programs.

 

In the section entitled “Compensation Discussion and Analysis,” we provide an additional discussion of the Compensation Committee’s role and responsibilities.

 

Nominating and Governance Committee

 

Number of Members:

   3

Members:

  

Jeffrey Katzenberg, Chairman

Mellody Hobson

Number of Meetings in 2015:

   1

Functions:

   The Nominating and Governance Committee is responsible for, among other things:

 

   

recommending persons to be selected by the Board of Directors as nominees for election as directors and Chief Executive Officer;

 

   

assessing the performance of the Board of Directors and the performance of the members of the Board of Directors;

 

   

recommending director compensation and benefits policies; and

 

   

considering and recommending to the Board of Directors other actions relating to corporate governance.

 

DreamWorks Animation’s amended and restated certificate of incorporation provides that until the earlier of the date that, in the opinion of its counsel, it is required by law or the applicable rules of a securities exchange to have a nominating and corporate governance committee comprised solely of “independent directors” and the date that no shares of Class B Stock remain outstanding, the Nominating and Governance Committee will be composed solely of Jeffrey Katzenberg (or, if he is not DreamWorks Animation’s chief executive officer, then his designee) and a director duly appointed by the Board of Directors. Currently, the Nominating and Governance Committee is composed of Mr. Katzenberg and one Board appointee, Ms. Hobson.

 

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Because Jeffrey Katzenberg currently controls approximately 60% of the total voting power of DreamWorks Animation’s Common Stock, DreamWorks Animation relies on the “controlled company” exemption to the NASDAQ rule requiring that director nominees be selected, or recommended for the Board of Directors’ selection, by the independent directors.

 

Executive Committee

 

The Board of Directors of DreamWorks Animation does not currently have an executive committee. In the event DreamWorks Animation forms an executive committee, Jeffrey Katzenberg (or, if he is not DreamWorks Animation’s chief executive officer, his designee) will be included on the executive committee for so long as the committee exists and such person is entitled to remain on the Board of Directors in accordance with the Vulcan Stockholder Agreement described in “Certain Relationships and Related Party Transactions—Vulcan Stockholder Agreement.”

 

Board Leadership Structure

 

Our Corporate Governance Guidelines provide that the Board has the authority to decide whether the offices of the Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”) shall be held by the same or different persons. The Board currently believes that separate individuals should hold the positions of Chairman and CEO, which has been the case since our initial public offering (“IPO”) in October 2004.

 

We believe the current structure described above provides strong leadership for our Board (especially given Ms. Hobson’s extensive corporate board experience), while also positioning our CEO as the leader of the Company for our employees, business partners and investors and the media. We believe that our current structure, which includes a non-executive Chairman, helps ensure independent oversight over the Company. Our current structure further allows the CEO to focus his energies on management of the Company.

 

Our Board currently has seven independent members. A number of our independent Board members are currently serving or have served as directors or as members of senior management of other companies. Our Audit and Compensation Committees are comprised solely of independent directors, each with a different independent director serving as chairperson of the committee. We believe that the number of independent experienced directors that make up our Board, along with the independent oversight of the Board by the non-executive Chairman, benefit our Company and our stockholders.

 

Pursuant to our bylaws and our Corporate Governance Guidelines, our Board determines the best leadership structure for the Company. As part of our annual self-evaluation process, the Board evaluates issues such as independence of the Board, communication between directors and management and other matters that may be relevant to our leadership structure.

 

Board of Directors’ Oversight of Risk

 

Our management bears responsibility for the management and assessment of risk at the Company on a daily basis. Management is also responsible for communicating the most material risks to the Board and its committees, who provide oversight over the risk management practices implemented by management. Our full Board provides oversight for risk management, except for the oversight of risks that have been specifically delegated to a committee. Even when the oversight of a specific area of risk has been delegated to a committee, the full Board may maintain oversight over such risks through the receipt of reports from the committee to the full Board. In addition, if a particular risk is material or where otherwise appropriate, the full Board may assume oversight over a particular risk, even if the risk was initially overseen by a committee. The Board and committee reviews occur principally through the receipt of regular reports from Company management on these areas of risk and discussions with management regarding risk assessment and risk management. Our Board believes that the leadership structure described above under “—Board Leadership Structure” facilitates the Board’s oversight of risk management because it allows the Board, working through its committees, to appropriately participate in the oversight of management’s actions.

 

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Full Board. At its regularly scheduled meetings, the Board generally receives a number of reports which include information relating to specific risks faced by the Company. As appropriate, the Company’s Chief Executive Officer or other members of senior management provide operational reports, which include risks relating to the Company’s core theatrical film and home entertainment business as well as the Company’s other business ventures. The Company’s Chief Financial Officer provides regular reports on the Company’s various investments, including its liquid assets, and an analysis of prospective capital sources and uses. The Company’s Head of Human Resources also provides periodic reports regarding, and leads the full Board in a discussion of, succession-planning issues. At its regularly scheduled Board meetings, the full Board also receives reports from individual committee chairpersons, which may include a discussion of risks initially overseen by the committees for discussion and input from the full Board. As noted above, in addition to these regular reports, the Board receives reports on specific areas of risk from time to time, such as cyclical or other risks that are not covered in the regular reports given to the Board.

 

Committees. The Audit Committee maintains initial oversight over risks related to the integrity of the Company’s financial statements, internal controls over financial reporting and disclosure controls and procedures (including the performance of the Company’s internal audit function), the performance of the Company’s independent registered public accounting firm and the operation of the Company’s ethics program. The Company’s General Counsel provides privileged reports to the Audit Committee on a periodic basis, which reports include information regarding the status of the Company’s litigation and related matters. Under the direction of the Company’s Head of Internal Audit, the Company conducts periodic assessments regarding the primary risks facing the Company and the Company’s associated risk-mitigation measures. Following completion of this assessment, the Head of Internal Audit presents a report to the Audit Committee. The Company’s Compensation Committee maintains initial oversight of risks related to the Company’s compensation practices, including practices related to equity programs, other executive or companywide incentive programs and hiring and retention. The Compensation Committee also reviews the Company’s compensation programs periodically for consistency and overall alignment with corporate goals and strategies.

 

Director Nominations

 

The Board of Directors nominates directors for election at each annual meeting of stockholders and elects new directors to fill vacancies when they arise. The Nominating and Governance Committee has the responsibility to identify, evaluate, recruit and recommend qualified candidates to the Board of Directors for nomination or election. The Nominating and Governance Committee will consider director candidates recommended by stockholders.

 

The Nominating and Governance Committee has a policy regarding consideration of director candidates, including director candidates recommended by stockholders. The Nominating and Governance Committee’s assessment of potential candidates for election to the Board of Directors includes, but is not limited to, consideration of (i) roles and contributions valuable to the business community; (ii) personal qualities of leadership, character, judgment and whether the candidate possesses and maintains throughout service on the Board of Directors a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) relevant knowledge and diversity of background and experience in such things as business, technology, Internet and new media, finance and accounting, marketing, international business, government and the like; and (iv) whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at all meetings.

 

The Nominating and Governance Committee assesses the Board of Directors’ current and anticipated strengths and needs based upon the Board of Directors’ then-current profile and DreamWorks Animation’s current and future needs and screens the slate of candidates to identify the individuals who best fit the criteria listed above and the Board of Directors’ needs. Although the Company does not maintain a separate policy regarding the diversity of the Board, during the director selection process the Nominating and Governance Committee seeks inclusion and diversity within the Board of Directors. Consistent with these principles, both the

 

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Nominating and Governance Committee and the full Board look for director nominees with diverse and distinct professional backgrounds, experience and perspectives so that the Board as a whole has the range of skills and viewpoints necessary to fulfill its responsibilities.

 

Stockholder nominations of candidates for election to the Board of Directors must be made in accordance with the procedures outlined in, and include the information required by, DreamWorks Animation’s Bylaws and must be addressed to: Corporate Secretary, DreamWorks Animation SKG, Inc., Campanile Building, 1000 Flower Street, Glendale, California 91201. Stockholders can obtain a copy of DreamWorks Animation’s Bylaws by writing to the Corporate Secretary at this address. See Procedural Matters—Deadline for Receipt of Stockholder Proposals—Proposals and Nominations Pursuant to Our Bylaws.

 

Communications with the Board of Directors

 

Any stockholders or any other interested parties may submit communications intended for the Board of Directors, any committees of the Board of Directors, the non-employee directors as a group or any individual member or members of the Board of Directors by directing them to DreamWorks Animation’s Corporate Secretary, 1000 Flower Street, Glendale, California 91201, with a request to forward the same to the intended recipient. In general, all communications delivered to the Corporate Secretary for forwarding to the Board of Directors or specified directors will be forwarded in accordance with the sender’s instructions. However, the Corporate Secretary reserves the right not to forward to directors regular business solicitations and any abusive, threatening or otherwise inappropriate materials.

 

Code of Business Conduct and Ethics

 

DreamWorks Animation has adopted a Code of Business Conduct and Ethics applicable to its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as well as persons performing similar functions. A copy of the Code of Business Conduct and Ethics has been filed as an exhibit to our Annual Report on Form 10-K and is also available at http://www.DreamWorksAnimation.com. A copy of the Code of Business Conduct and Ethics is also available in print to any stockholder upon request. Any amendments to and waivers from any provision of the Company’s Code of Business Conduct and Ethics applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and relating to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K will be posted on the Company’s website.

 

Director Compensation

 

The compensation of the Board of Directors is subject to the approval of the Compensation Committee. Directors who are employees of DreamWorks Animation receive no compensation for service as members of either the Board of Directors or board committees. For 2015, other than Mellody Hobson, who serves as Chairman of the Board, directors who are not employees of DreamWorks Animation received approximately $200,000 ($225,000 in the case of the chairperson of the Audit Committee) worth of equity awards annually. In recognition of her greater duties as Chairman of the Board, Ms. Hobson received an annual equity grant having a grant-date fair value of approximately $400,000 for 2015. All annual equity awards are paid 100% in the form of restricted stock units (or “RSUs”). The restricted stock units are fully vested at the time of grant and will be settled by the delivery of shares of Class A Stock only at the time the director leaves the Board of Directors. Directors do not receive annual cash retainers or meeting fees.

 

In accordance with the Company’s outside director compensation policy, the Company currently anticipates that all of its outside directors will receive annual equity grants on the date of the Annual Meeting. We currently expect that any future directors elected other than at an Annual Meeting of Stockholders will receive a pro-rated grant upon joining the Board and will thereafter receive annual grants on the same schedule as other directors.

 

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The table below details the compensation of our directors during 2015:

 

2015 Director Compensation(1)

 

Name

   Stock Awards  ($)(2)      All Other
Compensation
($)
     Total ($)  

Mellody Hobson(3)

   $ 399,993       $   —        $ 399,993   

Michael Montgomery(4)

   $ 224,988       $ —        $ 224,988   

Thomas Freston(5)

   $ 199,983       $ —        $ 199,983   

Harry M. (“Skip”) Brittenham(6)

   $ 199,983       $ —        $ 199,983   

Lucian Grainge(7)

   $ 199,983       $ —        $ 199,983   

Jason Kilar(8)

   $ 199,983       $ —        $ 199,983   

Mary Agnes (“Maggie”) Wilderotter(9)

   $ 116,646       $ —        $ 116,646   

 

(1) 

Compensation information for those members of the Company’s Board of Directors who are also considered named executive officers is disclosed in the section Executive Compensation Information—Summary Compensation Table.

(2) 

The amounts reflected in this column represent the aggregate grant date fair value of the awards of restricted stock units made during the year ended December 31, 2015 as computed in accordance with Accounting Standards Codification 718 Compensation-Stock Compensation (“ASC 718”). For a further discussion of the assumptions used in the calculation of the 2015 grant date fair value (for all applicable grants of equity awards) pursuant to ASC 718, please see “Financial Statements and Supplemental Data—Notes to Consolidated Financial Statements—Note 18 Stock-Based Compensation” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The restricted stock units are fully vested at the time of grant and will be settled by the delivery of shares of Class A Stock only at the time the director leaves the Board of Directors.

(3) 

Represents the grant date fair value of the award made to Ms. Hobson on May 26, 2015. As of December 31, 2015, Ms. Hobson held 91,798 vested restricted stock units that will be settled only upon her departure from the Board of Directors. As of December 31, 2015, Ms. Hobson held 4,075 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised.

(4) 

Represents the grant date fair value of the award made to Mr. Montgomery on May 26, 2015. As of December 31, 2015, Mr. Montgomery held 75,290 vested restricted stock units that will be settled only upon his departure from the Board of Directors. As of December 31, 2015, Mr. Montgomery held 7,415 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised.

(5) 

Represents the grant date fair value of the award made to Mr. Freston on May 26, 2015. As of December 31, 2015, Mr. Freston held 63,088 vested restricted stock units that will be settled only upon his departure from the Board of Directors. As of December 31, 2015, Mr. Freston held 3,622 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised.

(6) 

Represents the grant date fair value of the award made to Mr. Brittenham on May 26, 2015. As of December 31, 2015, Mr. Brittenham held 61,478 vested restricted stock units that will be settled only upon his departure from the Board of Directors.

(7) 

Represents the grant date fair value of the award made to Mr. Grainge on May 26, 2015. As of December 31, 2015, Mr. Grainge held 23,795 vested restricted stock units that will be settled only upon his departure from the Board of Directors.

(8) 

Represents the grant date fair value of the award made to Mr. Kilar on May 26, 2015. As of December 31, 2015, Mr. Kilar held 23,795 vested restricted stock units that will be settled only upon his departure from the Board of Directors.

(9) 

Represents the grant date fair value of the award made to Ms. Wilderotter on November 10, 2015. As of December 31, 2015, Ms. Wilderottter held 4,928 vested restricted stock units that will be settled only upon her departure from the Board of Directors.

 

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Pursuant to its policies, the Company reimburses its directors for expenses incurred in the performance of their duties, including reimbursement for air travel and hotel expenses.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2015, the Compensation Committee was initially composed of Ms. Hobson, Mr. Freston and Mr. Grainge, and as of October 2015 Mrs. Wilderotter replaced Mr. Freston. None of these persons has at any time been an officer or employee of the Company or any of our subsidiaries. In addition, no member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K adopted by the SEC. During the year ended December 31, 2015, none of the executive officers of the Company served on the board of directors or on the compensation committee of any other entity that has or had executive officers serving as a member of the Board of Directors or Compensation Committee of the Company.

 

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PROPOSAL NO. 2

RATIFICATION AND APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP (“PwC”), independent registered public accounting firm, to audit the financial statements of DreamWorks Animation for the year ending December 31, 2016. A representative of PwC is expected to be present at the Annual Meeting, will have the opportunity to make a statement and is expected to be available to respond to appropriate questions. PwC has served as our independent registered public accounting firm since February 24, 2011.

 

Required Vote

 

The Audit Committee has conditioned its appointment of DreamWorks Animation’s independent registered public accounting firm upon the receipt of a majority of the votes entitled to be cast by all shares of Common Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class. In the event that the stockholders do not approve the selection of PwC, the appointment of the independent registered public accounting firm will be reconsidered by the Audit Committee.

 

Recommendation

 

The Board of Directors unanimously recommends that stockholders vote “FOR” the ratification of the appointment of PwC as DreamWorks Animation’s independent registered public accounting firm for the year ending December 31, 2016.

 

Independent Registered Public Accounting Firm Fees

 

The Company has entered into an engagement agreement with PwC which sets forth the terms by which PwC will perform audit services for the Company.

 

The following table is a summary of the aggregate fees billed for the indicated services performed by PwC during 2014 and 2015 in their capacity as our independent registered public accounting firm during such years.

 

     2014      2015  

Audit Fees

   $ 2,864,000       $ 3,210,000   

Audit-Related Fees

     —          47,500  

Tax Fees

     53,969         —    

All Other Fees

     10,500         10,500   
  

 

 

    

 

 

 

Total

   $ 2,928,469       $ 3,268,000   
  

 

 

    

 

 

 

 

Audit Fees

 

Audit fees in 2014 and 2015, provided in the table above under “—Independent Registered Public Accounting Firm Fees,” consisted of fees and expenses billed for professional services rendered for the audit of DreamWorks Animation’s annual consolidated financial statements for the years ended December 31, 2014 and 2015 and the effectiveness of its internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002 and review of the interim consolidated financial statements included in quarterly reports.

 

Audit fees in 2014 and 2015 also consisted of fees billed for services normally provided in connection with statutory and regulatory filings or engagements (including audits of the Company’s foreign subsidiaries).

 

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Audit-Related Fees

 

Audit-related fees, provided in the table above under “—Independent Registered Public Accounting Firm Fees,” consist of fees and expenses billed for assurance and related services that are reasonably related to the performance of the audit or review of DreamWorks Animation’s consolidated financial statements and are not reported under “—Audit Fees.” These services include attest services that are not required by statute or regulation.

 

Tax Fees

 

Tax fees in 2014, provided in the table above under “—Independent Registered Public Accounting Firm Fees,” included fees paid for assistance with a state income tax audit.

 

All Other Fees

 

In 2014 and 2015, all other fees, provided in the table above under “—Independent Registered Public Accounting Firm Fees,” represent fees paid for the use of an online accounting research tool and fees for accounting and tax publications.

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

 

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm, including fees. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Since the IPO in October 2004, each new engagement of our independent registered public accounting firm was approved in advance by the Audit Committee, and none of such engagements made use of the de minimis exception to pre-approval contained in the SEC’s rules.

 

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PROPOSAL NO. 3

APPROVE THE ADOPTION OF THE

SECOND AMENDED AND RESTATED 2008 OMNIBUS INCENTIVE COMPENSATION PLAN

 

General

 

On April 14, 2016, the Board of Directors approved, subject to the approval of our stockholders, the DreamWorks Animation SKG, Inc. Second Amended and Restated 2008 Omnibus Incentive Compensation Plan (which we refer to as the Second Amended 2008 Plan). The Second Amended 2008 Plan is intended to replace the DreamWorks Animation SKG, Inc. Amended and Restated 2008 Omnibus Incentive Compensation Plan (which we refer to as the First Amended 2008 Plan). The First Amended 2008 Plan would be automatically terminated, replaced and superseded by the Second Amended 2008 Plan on the date on which the Second Amended 2008 Plan is approved by our stockholders, provided that any outstanding awards granted under the First Amended 2008 Plan and any predecessor plans (which we refer to collectively, along with the First Amended 2008 Plan, as the Prior Plans) would remain in effect pursuant to their terms. If stockholder approval is not received, the First Amended 2008 Plan will remain in place pursuant to its current terms and the changes described below will not be implemented.

 

We are not seeking to increase the number of shares of Class A Stock that we may issue pursuant to awards. Instead, the maximum number of shares of Class A stock we may issue under the Second Amended 2008 Plan remains equal to the maximum number of shares that remain available for future issuance under the First Amended 2008 Plan as of the date that the Second Amended 2008 Plan is approved by our stockholders, regardless of whether such shares are subject to outstanding awards as of that date. As of March 31, 2016, a total of approximately 10,413,863 shares of Class A Stock (including shares subject to outstanding awards) remained available for future issuance under the First Amended 2008 Plan.

 

Approval of the Second Amended 2008 Plan is being sought in order to maintain the deductibility of certain awards granted to our senior executives covered by Section 162(m) of the Code. Section 162(m) of the Code requires that the material terms of performance goals applicable to potential awards be reapproved by our stockholders every five years. At the annual meeting of our stockholders on April 21, 2011, the stockholders approved the First Amended 2008 Plan. There have been no changes to the list of potential performance measures from the First Amended 2008 Plan to the Second Amended 2008 Plan. For a further description of the implications of Section 162(m) of the Code, see “—Certain Federal Tax Aspects of the Second Amended 2008 Plan—Section 162(m),” below.

 

Although the Second Amended 2008 Plan generally restates the terms of the First Amended 2008 Plan, the two plans differ in one material respect. The Second Amended 2008 Plan establishes specific annual limits on the number of awards that can be granted pursuant to the plan to each independent director. The First Amended 2008 Plan included significantly higher per-person limits that were applicable to all participants. The Second Amended 2008 Plan establishes the following annual limits with respect to each independent director: (a) 100,000 shares, with respect to awards settled in shares, (b) the value of 100,000 shares multiplied by the per-share fair market value on the date that the award vests, is paid or is settled, with respect to awards settled in cash based on the fair market value of a share, and (c) $2,000,000 in cash and other property (other than shares), with respect to all other awards. The purpose of this change is to establish meaningful, stockholder-approved limits on independent director compensation. The Second Amended 2008 Plan also differs from the First Amended 2008 Plan in a number of immaterial respects, including by making certain clarifying changes related to the expiration period applicable to stock appreciation rights (or SARs) and Section 409A of the Code.

 

Set forth below is a summary of the Second Amended 2008 Plan, which is qualified in its entirety by the specific language of the Second Amended 2008 Plan, a copy of which is attached to this proxy statement as Annex A.

 

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Summary of the Second Amended 2008 Plan

 

General.    Our Board of Directors has approved the Second Amended 2008 Plan as a flexible omnibus incentive compensation plan that would allow us to use different forms of compensation awards to attract, retain and reward eligible participants under the Second Amended 2008 Plan and strengthen the mutuality of interests between management and our stockholders. The purpose of the Second Amended 2008 Plan would be to promote the interests of the Company and our stockholders by (i) attracting and retaining exceptional directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) and (ii) enabling such individuals to participate in our long-term growth and financial success.

 

Types of Awards.    The Second Amended 2008 Plan would provide for the grant of options intended to qualify as incentive stock options, or ISOs, under Section 422 of the Code, nonqualified stock options, or NSOs, SARs, restricted share awards, restricted stock units, or RSUs, performance compensation awards, performance units, cash incentive awards, deferred share units and other equity-based and equity-related awards, as well as cash-based awards.

 

Plan Administration.    The Second Amended 2008 Plan would be administered by the Compensation Committee of our Board of Directors or such other committee our Board designates to administer the Second Amended 2008 Plan (the “Committee”). Subject to the terms of the Second Amended 2008 Plan and applicable law, the Committee would have sole authority to administer the Second Amended 2008 Plan, including, but not limited to, the authority to (1) designate plan participants, (2) determine the type or types of awards to be granted to a participant, (3) determine the number of shares of our Class A Stock to be covered by awards, (4) determine the terms and conditions of awards, (5) determine the vesting schedules of awards and, if certain performance criteria were required to be attained in order for an award to vest or be settled or paid, establish such performance criteria and certify whether, and to what extent, such performance criteria have been attained, (6) interpret, administer, reconcile any inconsistency in, correct any default in and/or supply any omission in, the Second Amended 2008 Plan, (7) establish, amend, suspend or waive such rules and regulations and appoint such agents as it should deem appropriate for the proper administration of the Second Amended 2008 Plan, (8) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards, and (9) make any other determination and take any other action that the Committee deemed necessary or desirable for the administration of the Second Amended 2008 Plan.

 

Shares Available For Awards.    Subject to adjustment for changes in capitalization, the aggregate number of shares of Class A Stock that would be available to be delivered pursuant to awards granted under the Second Amended 2008 Plan (which will include any shares delivered pursuant to awards granted under any Prior Plan prior to the approval of the Second Amended 2008 Plan by our stockholders) would be equal to the number of shares remaining available for future issuance under the First Amended 2008 Plan as of the date the Second Amended 2008 Plan is approved by our stockholders, regardless of whether such shares are subject to outstanding awards as of June 2, 2016. Upon exercise of a stock-settled SAR, the maximum aggregate number of shares available under the Second Amended 2008 Plan would be reduced by the actual number of shares delivered upon settlement of such stock-settled SAR. Awards that are settled in cash would not reduce the number of shares available for delivery under the Second Amended 2008 Plan. If, after the effective date of the Second Amended 2008 Plan, any award granted under the Second Amended 2008 Plan or any Prior Plan were forfeited or otherwise expired, terminated or were canceled without the delivery of all shares subject thereto, or were settled other than by the delivery of shares (including cash settlement), then the number of shares subject to such award that were not issued would not be treated as issued for purposes of reducing the maximum aggregate number of shares that may be delivered pursuant the Second Amended 2008 Plan. In addition, shares that were surrendered or tendered to us in payment of the exercise price of an award or any taxes required to be withheld in respect of an award would become available again to be delivered pursuant to awards under the Second Amended 2008 Plan, provided that such surrendered or tendered shares would not increase the number of shares that may be delivered pursuant to ISOs under the Second Amended 2008 Plan.

 

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Subject to adjustment for changes in capitalization, with respect to awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the maximum number of shares of our Class A Stock that would be available to be granted pursuant to awards to any participant (other than an independent director) in the Second Amended 2008 Plan in any fiscal year would be 3,000,000. In the case of awards settled in cash based on the fair market value of a share, the maximum aggregate amount of cash that would be permitted to be paid pursuant to awards granted to any participant (other than an independent director) in the Second Amended 2008 Plan in any fiscal year would be equal to the per-share fair market value as of the relevant vesting, payment or settlement date multiplied by the maximum number of shares which could be granted to such participant, as described above. The maximum aggregate amount of cash and other property (valued at fair market value) that would be permitted to be paid or delivered to any participant (other than an independent director) pursuant to awards under the Second Amended 2008 Plan, the value of which would not be determined by reference to the fair market value of our shares, in any fiscal year would be $10,000,000.

 

Subject to adjustment for changes in capitalization, the maximum number of shares of our Class A Stock that would be available to be granted pursuant to awards to any independent director pursuant to the Second Amended 2008 Plan in any fiscal year would be 100,000. In the case of awards settled in cash based on the fair market value of a share, the maximum aggregate amount of cash that would be permitted to be paid pursuant to awards granted to any independent director pursuant to the Second Amended 2008 Plan in any fiscal year would be equal to the per-share fair market value as of the relevant vesting, payment or settlement date multiplied by the maximum number of shares which could be granted to independent directors, as described above. The maximum aggregate amount of cash and other property (valued at fair market value) that would be permitted to be paid or delivered to any independent director pursuant to awards under the Second Amended 2008 Plan, the value of which would not be determined by reference to the fair market value of our shares, in any fiscal year would be $2,000,000.

 

Changes in Capitalization.    In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off affecting the shares of our Class A Stock, the Committee would make adjustments and other substitutions to awards under the Second Amended 2008 Plan in the manner it determined to be appropriate or desirable. In the event of any reorganization, merger, consolidation, combination, repurchase or exchange of our Class A Stock or other similar corporate transactions (including any change of control), the Committee in its discretion would be permitted to make such adjustments and other substitutions to the Second Amended 2008 Plan and awards under the Second Amended 2008 Plan as it deemed appropriate or desirable.

 

Substitute Awards.    The Committee would be permitted to grant awards in assumption of, or in substitution for, outstanding awards previously granted by us or any of our affiliates or a company that we acquired or with which we combined. Any shares issued by us through the assumption of or substitution for outstanding awards granted by a company that we acquired would not reduce the aggregate number of shares of our Class A Stock available for awards under the Second Amended 2008 Plan, except that awards issued in substitution for ISOs would reduce the number of shares of our Class A Stock available for ISOs under the Second Amended 2008 Plan.

 

Source of Shares.    Any shares of our Class A Stock issued under the Second Amended 2008 Plan would consist, in whole or in part, of authorized and unissued shares or of treasury shares.

 

Eligible Participants.    Any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of us or our affiliates would be eligible to participate in the Second Amended 2008 Plan. The Company currently expects that awards will be generally limited to approximately 400 employees and non-employee directors (of whom there are currently seven eligible directors).

 

Stock Options.    The Committee would be permitted to grant both ISOs and NSOs under the Second Amended 2008 Plan. The exercise price for options would not be less than the fair market value (as defined in the Second Amended 2008 Plan) of Class A Stock on the grant date. The Committee would not reprice any option

 

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granted under the Second Amended 2008 Plan without the approval of our stockholders. All options granted under the Second Amended 2008 Plan would be NSOs unless the applicable award agreement expressly stated that the option was intended to be an ISO. Under the proposed Second Amended 2008 Plan, unless otherwise specified by the Committee, all ISOs and NSOs would be intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Subject to the applicable award agreement, options would vest and become exercisable with respect to one-fourth of the shares of our Class A Stock subject to such options on each of the first four anniversaries of the grant date. Unless otherwise set forth in the applicable award agreement, each option would expire upon the earlier of (i) the tenth anniversary of the date the option was granted and (ii) 90 days after the participant who was holding the option ceased to be a director, officer, employee or consultant for us or one of our affiliates. No option granted under the Second Amended 2008 Plan could be exercised more than 10 years after the date of grant. The exercise price would be permitted to be paid with cash (or its equivalent) or, in the sole discretion of the Committee, with previously acquired shares of our Class A Stock or through delivery of irrevocable instructions to a broker to sell our Class A Stock otherwise deliverable upon the exercise of the option (provided that there was a public market for our Class A Stock at such time), or, in the sole discretion of the Committee, a combination of any of the foregoing, provided that the combined value of all cash and cash equivalents and the fair market value of any such shares so tendered to us as of the date of such tender, together with any shares withheld by us in respect of taxes relating to an option, was at least equal to such aggregate exercise price.

 

Stock Appreciation Rights.    The Committee would be permitted to grant SARs under the Second Amended 2008 Plan. The exercise price for SARs would not be less than the fair market value (as defined in the Second Amended 2008 Plan) of our Class A Stock on the grant date. The Committee would not reprice any SAR granted under the Second Amended 2008 Plan without the approval of our stockholders. Upon exercise of a SAR, the holder would receive cash, shares of our Class A Stock, other securities, other awards, other property or a combination of any of the foregoing, as determined by the Committee, equal in value to the excess, if any, of the fair market value of a share of our Class A Stock on the date of exercise of the SAR over the exercise price of the SAR. Under the Second Amended 2008 Plan, unless otherwise specified by the Committee, all SARs would be intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Subject to the provisions of the Second Amended 2008 Plan and the applicable award agreement, the Committee would determine, at or after the grant of a SAR, the vesting criteria, term, methods of exercise, methods and form of settlement and any other terms and conditions of any SAR. Under certain circumstances, the Committee would have the ability to substitute, without the consent of the affected participant, SARs for outstanding NSOs. Unless otherwise set forth in the applicable award agreement, each SAR would expire upon the earlier of (i) the tenth anniversary of the date the SAR was granted and (ii) 90 days after the participant who was holding the SAR ceased to be a director, officer, employee or consultant for us or one of our affiliates. No SAR granted under the Second Amended 2008 Plan could be exercised more than 10 years after the date of grant.

 

Restricted Shares and Restricted Stock Units.    Subject to the provisions of the Second Amended 2008 Plan, the Committee would be permitted to grant restricted shares and RSUs. Restricted shares and RSUs would not be permitted to be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the Second Amended 2008 Plan or the applicable award agreement, except that the Committee could determine that restricted shares and RSUs would be permitted to be transferred by the participant for no consideration. Restricted shares could be evidenced in such manner as the Committee would determine.

 

An RSU would be granted with respect to one share of Class A Stock or have a value equal to the fair market value of one such share. Upon the lapse of restrictions applicable to an RSU, the RSU could be paid in cash, shares of our Class A Stock, other securities, other awards or other property, as determined by the Committee, or in accordance with the applicable award agreement. In connection with each grant of restricted shares, except as provided in the applicable award agreement, the holder would be entitled to the rights of a stockholder (including the right to vote and receive dividends) in respect of such restricted shares. The Committee would be permitted to, on such terms and conditions as it might determine, provide a participant who holds RSUs with dividend equivalents, payable in cash, shares of our Class A Stock, other securities, other

 

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awards or other property. If a restricted share or RSU were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the requirements described below in “—Performance Compensation Awards” would be required to be satisfied in order for such restricted share or RSU to be granted or vest.

 

Performance Units.    Subject to the provisions of the Second Amended 2008 Plan, the Committee would be permitted to grant performance units to participants. Performance units would be awards with an initial value established by the Committee (or that was determined by reference to a valuation formula specified by the Committee) at the time of the grant. In its discretion, the Committee would set performance goals that, depending on the extent to which they were met during a specified performance period, would determine the number and/or value of performance units that would be paid out to the participant. The Committee, in its sole discretion, would be permitted to pay earned performance units in the form of cash, shares of our Class A Stock or any combination thereof that would have an aggregate fair market value equal to the value of the earned performance units at the close of the applicable performance period. The determination of the Committee with respect to the form and timing of payout of performance units would be set forth in the applicable award agreement. The Committee would be permitted to, on such terms and conditions as it might determine, provide a participant who holds performance units with dividends or dividend equivalents, payable in cash, shares of our Class A Stock, other securities, other awards or other property. If a performance unit were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the requirements below described in “—Performance Compensation Awards” would be required to be satisfied.

 

Cash Incentive Awards.    Subject to the provisions of the Second Amended 2008 Plan, the Committee would be permitted to grant cash incentive awards, which, in the sole discretion of the Committee, may be payable upon the attainment of performance goals. If a cash incentive award were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the requirements described below in “—Performance Compensation Awards” would be required to be satisfied.

 

Other Stock-Based Awards.    Subject to the provisions of the Second Amended 2008 Plan, the Committee would be permitted to grant to participants other equity-based or equity-related compensation awards, including vested stock. The Committee would be permitted to determine the amounts and terms and conditions of any such awards. If such an award were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the requirements described below in “—Performance Compensation Awards” would be required to be satisfied.

 

Performance Compensation Awards.    The Committee would be permitted to designate any award granted under the Second Amended 2008 Plan (other than ISOs, NSOs and SARs) as a performance compensation award in order to qualify such award as “performance-based compensation” under Section 162(m) of the Code. Awards designated as performance compensation awards would be subject to the following additional requirements:

 

   

Recipients of Performance Compensation Awards.    The Committee would, in its sole discretion, designate within the first 90 days of a performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the participants who would be eligible to receive performance compensation awards in respect of such performance period. The Committee would also determine the length of performance periods, the types of awards to be issued, the performance criteria that would be used to establish the performance goals, the kinds and levels of performance goals and any objective performance formula used to determine whether a performance compensation award had been earned for the performance period.

 

   

Performance Criteria Applicable to Performance Compensation Awards.    The performance criteria would be limited to the following: (1) net income or earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization), (2) operating income, (3) earnings per share, (4) return on shareholders’ equity, (5) return on investment or capital, (6) return on assets, (7) level or amount of acquisitions, (8) share price, (9) profitability/profit margins, (10) market share (in the aggregate or by segment), (11) revenues or sales (including specified types or categories thereof) (based

 

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on units or dollars), (12) costs (including specified types or categories thereof), (13) cash flow, (14) working capital, (15) completion of production or stages of production within specified time or budget parameters (16) budgeted expenses (operating and capital) and (17) box office results (domestic, international or worldwide) of any of our films. These performance criteria would be permitted to be applied on an absolute basis or be relative to one or more peer companies or indices or any combination thereof or, if applicable, be computed on an accrual or cash accounting basis. The performance goals and periods could vary from participant to participant and from time to time. To the extent required under Section 162(m) of the Code, the Committee would, within the first 90 days of the applicable performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective manner the method of calculating the performance criteria it selected to use for the performance period.

 

   

Modification of Performance Goals.    The Committee would be permitted to adjust or modify the calculation of performance goals for a performance period in the event of, in anticipation of, or in recognition of, any unusual or extraordinary corporate item, transaction, event or development or any other unusual or nonrecurring events affecting the Company, any of its affiliates, subsidiaries, divisions or operating units (to the extent applicable to such performance goal) or its financial statements or the financial statements of any of its affiliates, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles, law or business conditions, so long as that adjustment or modification did not cause the performance compensation award to fail to qualify as “performance-based compensation” under Section 162(m) of the Code.

 

   

Requirements to Receive Payment for 162(m) Awards.    Except as otherwise permitted by Section 162(m) of the Code, in order to be eligible for payment in respect of a performance compensation award for a particular performance period, participants would be required to be employed by us on the last day of the performance period, the performance goals for such period would be required to be satisfied and certified by the Committee and the performance formula would be required to determine that all or some portion of the performance compensation award had been earned for such period.

 

   

Negative Discretion.    The Committee would be permitted to, in its sole discretion, reduce or eliminate the amount of a performance compensation award earned in a particular performance period, even if applicable performance goals had been attained and without regard to any employment agreement between us and a participant.

 

   

Limitations on Committee Discretion.    Except as otherwise permitted by Section 162(m) of the Code, in no event could any discretionary authority granted to the Committee under the Second Amended 2008 Plan be used to grant or provide payment in respect of performance compensation awards for which performance goals had not been attained, increase a performance compensation award for any participant at any time after the first 90 days of the performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) or increase a performance compensation award above the maximum amount payable under the underlying award.

 

   

Form of Payment.    Performance compensation awards (other than restricted shares, RSUs and other stock-based awards) would be payable in cash or in restricted stock, RSUs or fully vested shares of equivalent value and would be paid on the terms determined by the Committee in its discretion. Any shares of restricted stock or RSUs would be subject to the terms of the Second Amended 2008 Plan or any successor equity compensation plan and any applicable award agreement. The number of shares of restricted stock, RSUs or fully vested shares that is equivalent in value to a particular dollar amount would be determined in accordance with a methodology specified by the Committee within the first 90 days of a plan year (or, if shorter, the maximum period allowed under Section 162(m) of the Code).

 

Amendment and Termination of the Second Amended 2008 Plan.    Subject to any applicable law or government regulation, to any requirement that must be satisfied if the Second Amended 2008 Plan were intended to be a stockholder-approved plan for purposes of Section 162(m) of the Code and to the rules of the

 

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NASDAQ, the Second Amended 2008 Plan would be permitted to be amended, modified or terminated by our Board of Directors without the approval of our stockholders, except that stockholder approval would be required for any amendment that would (i) increase the maximum number of shares of our Class A Stock available for awards under the Second Amended 2008 Plan or increase the maximum number of shares of Company Class A Stock that could be delivered pursuant to ISOs granted under the Second Amended 2008 Plan, (ii) increase the annual share plan limits applicable to awards designated as “performance-based compensation” under Section 162(m) of the Code or awards granted to independent directors or (iii) change the class of employees or other individuals eligible to participate in the Second Amended 2008 Plan. Under these provisions, stockholder approval would not be required for all possible amendments that might increase the cost of the Second Amended 2008 Plan. No modification, amendment or termination of the Second Amended 2008 Plan that would materially and adversely impair the rights of any participant would be effective without the consent of the affected participant, unless otherwise provided by the Committee in the applicable award agreement.

 

The Committee would be permitted to waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any award previously granted, prospectively or retroactively. However, unless otherwise provided by the Committee in the applicable award agreement or in the Second Amended 2008 Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely impair the rights of any participant to any award previously granted would not to that extent be effective without the consent of the affected participant.

 

The Committee would be authorized to make adjustments in the terms and conditions of awards in the event of any unusual or nonrecurring corporate event (including the occurrence of a change of control of the Company) affecting the Company, any of its affiliates or its financial statements or the financial statements of any of its affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law whenever the Committee, in its discretion, determined that those adjustments were appropriate or desirable, including providing for the substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on, or termination of, awards or providing for a period of time for exercise prior to the occurrence of such event and, in its discretion, the Committee would be permitted to provide for a cash payment to the holder of an award in consideration for the cancellation of such award.

 

Change of Control.    The Second Amended 2008 Plan would provide that, unless otherwise provided in an award agreement, in the event of a change of control of the Company, unless provision was made in connection with the change of control for assumption of, or substitution for, awards previously granted:

 

   

any options and SARs outstanding as of the date the change of control was determined to have occurred would become fully exercisable and vested, as of immediately prior to the change of control;

 

   

all performance units, cash incentive awards and other awards designated as performance compensation awards would be paid out as if the date of the change of control were the last day of the applicable performance period and “target” performance levels had been attained; and

 

   

all other outstanding awards would automatically be deemed exercisable or vested and all restrictions and forfeiture provisions related thereto would lapse as of immediately prior to such change of control.

 

Unless otherwise provided pursuant to an award agreement, a change of control would be defined to mean any of the following events, generally:

 

   

during any period of 14 consecutive calendar months, a change in the composition of a majority of the board of directors, as constituted on the first day of such period, that was not supported by a majority of the incumbent board of directors;

 

   

consummation of certain mergers or consolidations of the Company with any other corporation following which the Company’s stockholders hold 50% or less of the combined voting power of the surviving entity;

 

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the stockholders approve a plan of complete liquidation or dissolution of the Company; or

 

   

an acquisition by any individual, entity or group of beneficial ownership of a percentage of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors that was equal to or greater than 40%, if such percentage exceeds the aggregate percentage of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors then owned by Jeffrey Katzenberg and David Geffen.

 

Although award agreements may provide for a different definition of change of control than is provided for in the Second Amended 2008 Plan, except in the case of a transaction described in the third bullet above, any definition of change of control set forth in any award agreement would provide that a change of control would not occur until consummation or effectiveness of a change in control of the Company, rather than upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction that, if completed, would result in a change in control of the Company.

 

Term of the Second Amended 2008 Plan.    No award would be permitted to be granted under the Second Amended 2008 Plan after the tenth anniversary of the date the Second Amended 2008 Plan was approved by the stockholders.

 

Certain Federal Tax Aspects of the Second Amended 2008 Plan

 

The following summary describes the federal income tax treatment associated with options awarded under the Second Amended 2008 Plan. The summary is based on the law as in effect on April 20, 2016. The summary does not discuss state or local tax consequences or non-U.S. tax consequences.

 

Incentive Stock Options.    Neither the grant nor the exercise of an ISO results in taxable income to the optionee for regular federal income tax purposes. However, an amount equal to (i) the per-share fair market value on the exercise date minus the exercise price at the time of grant multiplied by (ii) the number of shares with respect to which the ISO is being exercised will count as “alternative minimum taxable income” which, depending on the particular facts, could result in liability for the “alternative minimum tax” or AMT. If the optionee does not dispose of the shares issued pursuant to the exercise of an ISO until the later of the two-year anniversary of the date of grant of the ISO and the one-year anniversary of the date of the acquisition of those shares, then (a) upon a later sale or taxable exchange of the shares, any recognized gain or loss would be treated for tax purposes as a long-term capital gain or loss and (b) the Company would not be permitted to take a deduction with respect to that ISO for federal income tax purposes.

 

If shares acquired upon the exercise of an ISO were disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally the optionee would realize ordinary income in the year of disposition in an amount equal to the lesser of (i) any excess of the fair market value of the shares at the time of exercise of the ISO over the amount paid for the shares or (ii) the excess of the amount realized on the disposition of the shares over the participant’s aggregate tax basis in the shares (generally, the exercise price). A deduction would be available to the Company equal to the amount of ordinary income recognized by the optionee. Any further gain realized by the optionee will be taxed as short-term or long-term capital gain and would not result in any deduction by the Company. A disqualifying disposition occurring in the same calendar year as the year of exercise would eliminate the alternative minimum tax effect of the ISO exercise.

 

Special rules may apply where all or a portion of the exercise price of an ISO is paid by tendering shares, or if the shares acquired upon exercise of an ISO are subject to substantial forfeiture restrictions. The foregoing summary of tax consequences associated with the exercise of an ISO and the disposition of shares acquired upon exercise of an ISO assumes that the ISO is exercised during employment or within three months following termination of employment. The exercise of an ISO more than three months following termination of employment will result in the tax consequences described below for NSOs, except that special rules apply in the

 

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case of disability or death. An individual’s stock options otherwise qualifying as ISOs will be treated for tax purposes as NSOs (and not as ISOs) to the extent that, in the aggregate, they first become exercisable in any calendar year for stock having a fair market value (determined as of the date of grant) in excess of $100,000.

 

Nonqualified Stock Options.    An NSO (that is, a stock option that does not qualify as an ISO) would result in no taxable income to the optionee or deduction to the Company at the time it is granted. An optionee exercising an NSO would, at that time, realize taxable compensation equal to (i) the per-share fair market value on the exercise date minus the exercise price at the time of grant multiplied by (ii) the number of shares with respect to which the option is being exercised. If the NSO was granted in connection with employment, this taxable income would also constitute “wages” subject to withholding and employment taxes. A corresponding deduction would be available to the Company. The foregoing summary assumes that the shares acquired upon exercise of an NSO option are not subject to a substantial risk of forfeiture.

 

Section 162(m).    Section 162(m) of the Code currently provides that if, in any year, the compensation that is paid to our Chief Executive Officer or to any of our three other most highly compensated executive officers (currently excluding our Chief Financial Officer) exceeds $1,000,000 per person, any amounts that exceed the $1,000,000 threshold will not be deductible by us for federal income tax purposes, unless the compensation qualifies for an exception to Section 162(m) of the Code. Certain performance-based awards under plans approved by stockholders are not subject to the deduction limit. Stock options that would be awarded under the Second Amended 2008 Plan are intended to be eligible for this performance-based exception.

 

Section 409A.    Section 409A of the Code imposes restrictions on nonqualified deferred compensation. Failure to satisfy these rules results in accelerated taxation, an additional tax to the holder of the amount equal to 20% of the deferred amount, and a possible interest charge. Stock options granted with an exercise price that is not less than the fair market value of the underlying shares on the date of grant will not give rise to “deferred compensation” for this purpose unless they involve additional deferral features. Stock options that would be awarded under the Second Amended 2008 Plan are intended to be eligible for this exception.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information about equity-based awards outstanding and shares of Class A Stock available for future awards under all of our equity compensation plans as of December 31, 2015:

 

Plan category

   Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights
(a)(1)
     Weighted-average
exercise price  of
outstanding
options, warrants
and rights
(b)(2)
     Number of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)(3)
 

Equity compensation plans approved by security holders

     9,701,462       $ 29.61         10,541,025   

Equity compensation plans not approved by security holders

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

     9,701,462       $ 29.61         10,541,025   

 

(1) 

Includes 5,395,719 shares subject to restricted stock units or performance compensation awards (at maximum performance levels) that entitle each holder to one share of Class A common stock for each unit or award that vests over the holder’s period of continued service (or, in the case of certain awards to outside directors, upon the director’s departure from the Board) and/or the satisfaction or attainment of specified performance criteria. For purposes of this column, each outstanding SAR is assumed to result in the issuance of one share; however, the actual portion of a share issued upon exercise of a SAR will depend on the stock price at the time of exercise.

 

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(2) 

Calculated without taking into account the 5,395,719 shares of Class A common stock subject to the awards described in footnote 1 and that will become issuable following the vesting of those units and awards, without any cash consideration or other payment required for those shares.

(3) 

As of December 31, 2015, 9,741,025 shares of Class A common stock were available for issuance under the First Amended 2008 Plan. Pursuant to the First Amended 2008 Plan, the number of shares available for issuance is automatically increased by, among other things, the number of shares with respect to awards that are forfeited as well as the number of shares surrendered or tendered to the Company in payment of the exercise price of any award or any taxes required to be withheld in respect of any award. Such shares may be issued upon the exercise of stock options or stock appreciation rights granted under the First Amended 2008 Plan or pursuant to restricted stock issuances, restricted stock unit awards, performance compensation awards, performance units, deferred share units and other equity-based awards under the First Amended 2008 Plan. Includes 800,000 shares of Class A common stock available for issuance under our broad-based, stockholder-approved Employee Stock Purchase Plan (the “ESPP”). The ESPP provides employees with the right to purchase shares in an amount and at a price that are not determined until the end of the specified purchase period. As of the date of this Proxy Statement, the Company has not granted any purchase rights or issued any shares under the ESPP.

 

New Plan Benefits

 

The following New Plan Benefits table lists each person named in the Summary Compensation Table, all current executive officers as a group, all current directors (other than executive officers) as a group and all current employees of the Company (other than executive officers) as a group, indicating the aggregate number of determinable awards to be granted under the Plan to each of the foregoing.

 

NEW PLAN BENEFITS

 

DreamWorks Animation SKG, Inc. Second Amended and Restated 2008 Omnibus Incentive Compensation Plan

 

Name and Principal Position

   Dollar Value ($)     Number of
Units

Jeffrey Katzenberg, Chief Executive Officer

     $    —        —  

Ann Daly, President

     $    —        —  

Fazal Merchant, Chief Financial Officer

     $    —        —  

Andrew Chang, General Counsel

     $    —        —  

Edward Aleman, Former Chief Accounting Officer

     $    —        —  

Lewis Coleman, Former Vice Chairman, President and Chief Financial Officer

     $    —        —  

Michael Francis, Former Chief Global Brand Officer

     $    —        —  

All Current Executive Officers as a Group (six persons)

     $    —        —  

All Current Directors (other than Executive Officers) as a Group (seven persons)

   $ 1,625,000 (1)    —  (2)

All Current Employees (other than Executive Officers) as a Group (2,416 persons)

     $    —        —  

 

(1) 

Amount represents restricted stock unit grants to our independent directors that were approved by our Compensation Committee at its meeting held on April 20, 2016 and which will be effective as of the date of the Annual Meeting, subject in each instance to the recipient director remaining a director as of that date.

(2) 

The number of units will be based upon the fair market value, as defined in the Plan, of the Company’s Class A Common Stock on June 2, 2016 (the date of grant).

 

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Additional Information Regarding the Plan

 

The following table lists each person named in the “Summary Compensation Table,” each director nominee, all current executive officers as a group, all current directors (other than executive officers) as a group, each associate of the foregoing persons, each other person who received at least five percent of the options under the First Amended 2008 Plan, and all current employees of the Company (other than executive officers) as a group, indicating, as of December 31, 2015, the aggregate number of options granted under the First Amended 2008 Plan to each of the foregoing since the inception of the First Amended 2008 Plan in 2011. The fair market value per share of Class A Stock on April 18, 2016 was $27.26.

 

OUTSTANDING AWARDS

 

Name and Principal Position

  Options granted
Under the Prior Plan
From Inception
    Weighted Average
Exercise Price

Jeffrey Katzenberg, Chief Executive Officer

    —        N/A

Ann Daly, President

    —        N/A

Fazal Merchant, Chief Financial Officer

    —        N/A

Andrew Chang, General Counsel

    —        N/A

Edward Aleman, Former Chief Accounting Officer

    —        N/A

Lewis Coleman, Former Vice Chairman, President and Chief Financial Officer

    —        N/A

Michael Francis, Former Chief Global Brand Officer

    —        N/A

Mellody Hobson, Director

    —        N/A

Michael Montgomery, Director

    —        N/A

Thomas E. Freston, Director

    —        N/A

Harry “Skip” Brittenham, Director

    —        N/A

Lucian Grainge, Director

    —        N/A

Jason Kilar, Director

    —        N/A

Mary Ann “Maggie” Wilderotter, Director

    —        N/A

All Current Executive Officers as a Group (six persons)

    —        N/A

All Current Directors (other than Executive Officers) as a Group (seven persons)

    —        N/A

Associates of Named Executive Officers, Directors and Director Nominees

    —        N/A

All Current Employees (other than Executive Officers) as a Group (2,416 persons)

    258,340      $26.37

 

N/A: Not applicable

 

Required Vote

 

The affirmative vote of the majority of the votes cast at the Annual Meeting by holders of Class A Stock and Class B Stock entitled to vote, voting together as a single class, is required for the adoption of the Second Amended 2008 Plan.

 

Recommendation

 

The Board of Directors recommends that the stockholders vote “FOR” the adoption of the Second Amended and Restated 2008 Omnibus Incentive Compensation Plan.

 

Unless a proxy is marked to give a different direction, it is the intention of the persons named in the proxy to vote the shares represented thereby in favor of the adoption of the Second Amended and Restated 2008 Omnibus Incentive Compensation Plan.

 

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PROPOSAL NO. 4

AN ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

The Board of Directors recognizes the significant interest of stockholders in executive compensation matters. Pursuant to Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)), we are providing our stockholders with an opportunity to cast an advisory vote to approve the compensation of our named executive officers as disclosed in the “Summary Compensation Table” and other tables and the related narratives, as well as in the section of this Proxy Statement entitled “Compensation Discussion and Analysis,” in accordance with SEC rules.

 

Our compensation philosophy and framework have resulted in compensation for our named executive officers that is commensurate with both the Company’s financial results and the other performance factors described under “Compensation Discussion and Analysis.” Our executive compensation programs are designed to attract, motivate and retain executives and professionals of the highest level of quality and effectiveness. These programs focus on rewarding the types of performance that increase stockholder value, link executive compensation to the Company’s long-term strategic objectives and align executive officers’ interests with those of our stockholders. The Company believes that its executive compensation programs, which generally emphasize long-term equity awards and variable compensation, satisfy these goals.

 

As this is an advisory vote, the result will not be binding on our Board of Directors, although our Compensation Committee, which is comprised solely of independent directors, will consider the outcome of the vote when evaluating the effectiveness of our compensation policies and practices. The Board of Directors believes that our current executive compensation program has been effective at directly linking executive compensation to our performance and aligning the interests of our named executive officers with those of our stockholders. We are asking for stockholder approval of the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with SEC rules, which disclosures include the disclosures under “Compensation Discussion and Analysis” and “Executive Compensation Information.” 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. We currently conduct annual advisory votes on named executive officer compensation, and we expect to conduct the next advisory vote at our 2017 Annual Meeting of Stockholders.

 

Required Vote

 

The affirmative vote of the majority of the votes cast at the Annual Meeting by holders of Class A Stock and Class B Stock entitled to vote, voting together as a single class, is required for the advisory approval of this proposal.

 

Recommendation

 

The Board of Directors unanimously recommends that the stockholders vote “FOR” the adoption of the following non-binding resolution:

 

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.

 

Unless a proxy is marked to give a different direction, it is the intention of the persons named in the proxy to vote the shares represented thereby in favor of the approval of the compensation of our named executive officers as disclosed in this Proxy Statement.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding the beneficial ownership of DreamWorks Animation’s Common Stock as of April 8, 2016 (unless otherwise indicated) with respect to:

 

   

each of DreamWorks Animation’s current and proposed directors;

 

   

each of the named executive officers listed in the Summary Compensation Table;

 

   

DreamWorks Animation’s directors and executive officers as a group; and

 

   

persons owning more than 5% of a class of Common Stock.

 

The percentage of beneficial ownership of Common Stock indicated in the following table is based on 78,698,244 shares of Class A Stock and 7,838,731 shares of Class B Stock outstanding. Except as indicated in footnotes to this table, the stockholders named in this table are known to the Company to have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable. Shares shown as beneficially owned by any person have been determined in accordance with the requirements of Rule 13d-3 promulgated under the Exchange Act. With respect to the stock appreciation rights held by our executive officers and directors, we have treated each stock appreciation right as if it represented upon exercise one full share of Class A Stock, although the actual percentage of a share received upon exercise will depend on the exercise price of such stock appreciation right and the price of the Class A Stock at the time of exercise.

 

Unless otherwise indicated, the address for each of DreamWorks Animation’s directors and named executive officers and each beneficial owner of more than 5% of a class of Common Stock listed in the table below is: c/o DreamWorks Animation SKG, Inc., 1000 Flower Street, Glendale, CA 91201.

 

Name and Address of

Beneficial Owner

   Title of
Class
     Shares of
Common
Stock
Beneficially
Owned
     % of Class
Beneficially
Owned(1)
    % of  Total
Voting
Power(2)
 

Current and Proposed Directors

          

Jeffrey Katzenberg(3)

     Class A         2,120,223         11.4     60.7
     Class B         7,838,731         100.0     59.6

Harry M. (“Skip”) Brittenham(4)

     Class A         61,478         *        *   

Thomas E. Freston(5)

     Class A         66,710         *        *   

Lucian Grainge(4)

     Class A         23,795         *        *   

Mellody Hobson(6)

     Class A         114,085         *        *   

Jason Kilar(4)

     Class A         23,795         *        *   

Michael Montgomery(7)

     Class A         82,705         *        *   

Mary Agnes (“Maggie”) Wilderotter(4)

     Class A         4,928         *        *   

 

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Name and Address of

Beneficial Owner

   Title of
Class
     Shares of
Common
Stock
Beneficially
Owned
     % of Class
Beneficially
Owned(1)
    % of  Total
Voting
Power(2)
 

Named executive officers who are not directors

          

Ann Daly(8)

     Class A         974,427         1.2     *   

Fazal Merchant

     Class A         6,403        *        *   

Andrew Chang(9)

     Class A         38,431         *        *   

Edward Aleman

     Class A         6,193         *        *   

Lewis W. Coleman(10)

     Class A         1,284,202         1.6     *   

Michael Francis

     Class A         45,569         *        *   

Directors and executive officers as a group (13 persons)(11)

     Class A         3,533,343         12.8     60.9
     Class B         7,838,731         100.0     59.6

Persons owning more than 5% of a class of our equity securities

          

Southeastern Asset Management, Inc.,

Longleaf Partners Small-Cap Fund and

O. Mason Hawkins(12)

     Class A         16,135,752         20.5     8.2

6410 Poplar Avenue, Suite 900

Memphis, Tennessee 38119

          

PRIMECAP Management Company(13)

     Class A         11,696,200         14.9     6.0

225 South Lake Avenue, #400

Pasadena, California 91101

          

Horizon Kinetics LLC,

Horizon Asset Management, LLC,

Kinetics Asset Management, LLC

and Kinetics Advisers, LLC(14)

     Class A         8,149,567         10.4     4.2

470 Park Avenue South, 4th Floor South

New York, New York 10016

          

BlackRock, Inc.(15)

     Class A         6,204,602         7.9     3.2

40 East 52nd Street

New York, New York 10022

          

Wellington Management Group LLP,

Wellington Group Holdings, LLP,

Wellington Investment Advisors Holdings LLP, and

Wellington Management Company LLP(16)

     Class A         5,505,511         7.0     2.8

280 Congress Street

Boston, MA 02210

          

The Vanguard Group(17)

     Class A         4,864,101         6.2     2.5

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

          

Steven Spielberg(18)

     Class A         4,574,899         5.8     2.3

 

* Less than 1%

 

(1) For purposes of this column, the percentage shown for any person or entity with respect to Class A Stock assumes the conversion of any Class B Stock beneficially owned by such person or entity into Class A Stock on a one-for-one basis.

 

(2) For purposes of this column, the percentage shown for any person or entity (i) with respect to Class A Stock, includes the effect of the super-voting rights of any Class B Stock beneficially owned by such person or entity and (ii) with respect to Class B Stock, excludes the voting rights of any Class A Stock beneficially owned by such person or entity.

 

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(3) Shares beneficially owned by Mr. Katzenberg include:

 

   

1,050,427 shares of Class A Stock;

 

   

1,069,796 vested stock appreciation rights that will be settled by the delivery of Class A Stock when exercised; and

 

   

7,838,731 shares of Class B Stock owned by entities controlled by Mr. Katzenberg.

 

(4) Represents vested restricted stock units that will be settled in shares of Class A Stock upon the director’s departure from the Board.

 

(5) Represents (i) 3,622 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised and (ii) 63,088 vested restricted stock units that will be settled in shares of Class A Stock upon Mr. Freston’s departure from the Board.

 

(6) Includes (i) 4,075 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised and (ii) 110,010 vested restricted stock units that will be settled in shares of Class A Stock upon Ms. Hobson’s departure from the Board.

 

(7) Represents (i) 7,415 vested stock appreciation rights that will be settled by the delivery of Class A Stock when exercised and (ii) 75,290 vested restricted stock units that will be settled in shares of Class A Stock upon Mr. Montgomery’s departure from the Board.

 

(8) Includes 319,260 vested stock appreciation rights that will be settled by delivery of shares of Class A Stock when exercised.

 

(9) Includes 14,586 vested stock appreciation rights that will be settled by delivery of shares of Class A Stock when exercised.

 

(10) Includes 844,526 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised. The ownership numbers are as of January 30, 2015, the date that Mr. Coleman retired from the Company. He is included in the table because he is considered one of the Company’s named executive officers for the year ended December 31, 2015.

 

(11) Amount includes 1,430,199 vested stock appreciation rights that will be settled by the delivery of shares of Class A Stock when exercised. The aggregate ownership numbers are as of April 8, 2016 for all directors and executive officers other than Mr. Coleman, for whom ownership numbers are as of January 30, 2015, and Mr. Francis, for whom ownership numbers are as of December 8, 2015.

 

(12) Based solely on a Schedule 13G report jointly filed with the SEC and prepared as of February 12, 2016 by Southeastern Asset Management, Inc. (“Southeastern”), Longleaf Partners Small-Cap Fund (“Longleaf”) and O. Mason Hawkins. Southeastern reported that it may be deemed to beneficially own 16,135,752 shares, had shared dispositive and voting power as to 13,939,400 shares, sole dispositive power as to 2,196,352 shares, and sole voting power with respect to 1,975,452 shares. Longleaf reported that it may be deemed to beneficially own and had shared voting and dispositive power with respect to 13,939,400 shares. O. Mason Hawkins reported that he may be deemed to beneficially own and had sole voting and dispositive power with respect to none of the shares.

 

(13) Based solely on a Schedule 13G report filed with the SEC and prepared as of December 31, 2015 by PRIMECAP Management Company (“PRIMECAP”). PRIMECAP reported that it may be deemed to beneficially own 11,696,200 shares. PRIMECAP had sole dispositive power as to all shares and sole voting power as to 8,557,500 shares.

 

(14) Based solely on a Schedule 13G report jointly filed with the SEC and prepared as of December 31, 2015 by Horizon Kinetics LLC and Horizon Asset Management, LLC. Horizon Kinetics LLC reported that it may be deemed to beneficially own and had sole voting and dispositive power with respect to 8,149,567 shares. Horizon Asset Management, LLC reported that it may be deemed to beneficially own and had sole voting and dispositive power with respect to 5,045,955 shares.

 

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(15) Based solely on a Schedule 13G report filed with the SEC and prepared as of December 31, 2015 by BlackRock, Inc. (“BlackRock”). BlackRock reported that it may be deemed to beneficially own 6,204,602 shares. BlackRock had sole dispositive power as to all shares and sole voting power as to 6,032,682 shares.

 

(16) As reported in a Schedule 13G report filed with the SEC prepared as of December 31, 2015. Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP (collectively, “Wellington”), an investment advisor, reported that it may be deemed to beneficially own the shares shown that are held of record by its clients who have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares. Wellington had shared dispositive power as to all shares and shared voting power as to 3,192,936 shares.

 

(17) Based solely on a Schedule 13G report filed with the SEC and prepared as of December 31, 2015 by The Vanguard Group (“Vanguard”). Vanguard reported that it may be deemed to beneficially own 4,864,101 shares. Vanguard had shared dispositive power as to 93,663 shares, sole dispositive power as to 4,770,438 shares and sole voting power as to 93,763 shares.

 

(18) As reported in a Schedule 13G report filed with the SEC prepared as of December 31, 2015. The shares are owned directly by Steven Spielberg. The address for Mr. Spielberg and the entities controlled by him is c/o Breslauer, Rutman & Anderson, 11400 Olympic Boulevard, Los Angeles, California 90064.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires DreamWorks Animation’s executive officers and directors and each person who owns more than 10% of DreamWorks Animation’s Common Stock to file initial reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the NASDAQ. Such executive officers, directors and 10% stockholders are also required by SEC rules to furnish DreamWorks Animation with copies of all such forms that they file.

 

Based solely on its review of the copies of such forms received by DreamWorks Animation and written representations from certain reporting persons that no Forms 5 were required for such persons, DreamWorks Animation believes that all of its officers, directors and 10% stockholders complied with all Section 16(a) filing requirements applicable to them with respect to transactions during the year ended December 31, 2015 with the following exception: Mr. Michael Francis was late filing a Form 4 with respect to one transaction and subsequently filed a Form 4.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

In this Compensation Discussion and Analysis, we provide an overview and analysis of our compensation program and policies, the material compensation decisions that the Compensation Committee has made under these programs and policies with respect to our named executive officers and the material factors the Compensation Committee considered in making those decisions. Following this Compensation Discussion and Analysis, you will find a series of tables and narrative disclosure containing specific data about the compensation earned in 2015 by the following individuals, to whom we refer as our named executive officers:

 

   

Jeffrey Katzenberg, our Chief Executive Officer;

 

   

Ann Daly, our President;

 

   

Fazal Merchant, our Chief Financial Officer;

 

   

Andrew Chang, our General Counsel;

 

   

Edward Aleman, who served as our Chief Accounting Officer until March 4, 2016;

 

   

Lewis Coleman, who served as our President and Chief Financial Officer until August 2014 and as our Vice Chairman from August 2014 until January 2015; and

 

   

Michael Francis, who served as our Chief Global Brand Officer until December 2015.

 

Executive Summary

 

Compensation Principles

 

The following principles have guided us in developing the various elements of our compensation program and determining total compensation levels for our named executive officers:

 

   

Our compensation programs should encourage our executives to increase long-term stockholder value in a manner that appropriately balances short-term growth objectives and does not create undue risk for the Company and its stockholders;

 

   

As a company, we must be prepared to compete with much larger organizations (which have greater resources than ours) for executive talent; and

 

   

Our compensation practices should take into account the volatile nature of our business, which is heavily dependent on the success of two motion picture releases per year.

 

Compensation Philosophy and Objectives

 

Our compensation philosophy is to attract, motivate and retain exceptional directors, officers and employees. The objectives of our compensation program are to:

 

   

Provide competitive compensation, consisting of both cash and equity-based components, which appropriately encourages and rewards the creation of enduring long-term stockholder value;

 

   

Directly link executive compensation to established short-term operating goals and long-term strategic objectives; and

 

   

Align executive officers’ interests with stockholder interests through a simple, understandable framework that creates a sense of ownership and shared risk among executives.

 

Compensation Governance

 

The Compensation Committee regularly reviews evolving practices in governance and executive compensation. Our key executive compensation practices, which we believe promote good governance and are in the best interests of our stockholders, include:

 

   

We focus on variable compensation whereby a substantial portion of executive compensation is at-risk and dependent upon performance against specified goals;

 

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We employ “double-trigger” change-in-control provisions in all of our incentive plans and agreements;

 

   

We provide limited perquisites to our named executive officers;

 

   

Our Compensation Committee is comprised solely of independent directors;

 

   

We hold an annual advisory stockholder vote on our executive compensation program;

 

   

Our executive compensation arrangements do not include any change-in-control excise tax gross-up provisions; and

 

   

Our insider trading policy prohibits any executive officer from engaging in derivative or hedging transactions in Company stock or from pledging Company stock.

 

2015 Executive Compensation Highlights

 

As discussed further below, the compensation of our named executive officers for 2015 reflected the following:

 

   

Based on the Company’s 2015 adjusted operating income results, the Company funded the annual executive incentive bonus pool at the maximum amount (200% or, in the case of Mr. Katzenberg, 150%);

 

   

As a result of the Company’s 2015 earnings before interest and taxes, the Committee certified that the performance objectives had been satisfied with respect to restricted stock unit grants made to certain of our named executive officers in October 2014;

 

   

The Compensation Committee approved an amended and restated employment agreement with Andrew Chang, our General Counsel, and approved an increase in his target annual compensation as a result of his long tenure with the Company and an assessment of internal pay equity considerations; and

 

   

As a result of the Company’s return on equity for the three-year period ended December 31, 2015, the Compensation Committee certified that the performance objectives had not been satisfied with respect to performance compensation award grants made in October 2012 to certain of our named executive officers.

 

2015 Say-on-Pay Vote

 

As required under the Dodd-Frank Act, in 2015 we provided our stockholders with the opportunity to cast an advisory vote to approve the compensation of our named executive officers as disclosed in our 2015 Proxy Statement commonly referred to as “Say-on-Pay.” We provide our stockholders with a Say-on-Pay vote on an annual basis. The Compensation Committee reviewed the results of the Company’s 2015 Say-on-Pay vote, in which approximately 87% of votes cast, excluding abstentions and broker non-votes, voted in favor of our compensation practices. The Compensation Committee determined that the Company’s executive compensation philosophy, compensation objectives and compensation elements continued to be appropriate and determined not to materially alter such practices for 2015. The Compensation Committee will continue to consider the outcome of the Company’s Say-on-Pay votes when making future compensation decisions for the named executive officers.

 

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Compensation Program Design

 

The principal components of 2015 executive officer compensation and the primary purpose of each element are set forth in the following table:

 

Compensation Element

  

Objectives and Basis

  

Form

Base salary

   Provide current income at a competitive level   

Cash

Annual cash incentive awards

   Incentivize and reward achievement of annual performance goals   

Cash

Long-term equity incentive awards

   Incentivize long-term stockholder-value creation; align executive officers’ and stockholders’ interests   

Restricted stock units (“RSUs”) and performance compensation awards

Perquisites and other personal benefits

   Provide competitive health and welfare benefits consistent with the general employee population and selected additional benefits to executives for convenience and personal security as are necessary to attract and retain exceptional talent in our industry   

Various

Post-termination benefits

   Provide executive officers with certain compensation assurances in the event of employment loss due to unforeseen circumstances as are necessary to attract and retain exceptional talent in our industry   

Various

 

We generally target total compensation within the range of median peer practices and make appropriate adjustments for the Company’s smaller size relative to peer media companies and consumer entertainment content developers. Individuals may be above or below targeted levels depending on Company and individual performance, experience, advancement potential and internal equity considerations.

 

In determining the appropriate mix of compensation elements, we strive to balance the objectives of rewarding recent results and motivating long-term performance. Overall, we believe that our compensation program design appropriately incentivizes our executives toward long-term stockholder value creation. We also believe that our various compensation elements work together in a manner that discourages our executives from taking unnecessary risk and, thus, are not likely to have a material adverse effect on the Company.

 

The chart below illustrates, with respect to our named executive officers (other than Mr. Coleman, who did not receive equity-based awards in 2015) and the terms of their employment agreements in effect as of December 31, 2015 (or, for Mr. Francis, at the time of termination of his employment), (i) the average target percentage of fixed compensation in comparison to variable compensation and (ii) the average target percentage of cash compensation in comparison to equity compensation. A significant portion of our named executive officers’ compensation is “at-risk” and, therefore, illustrative of our compensation philosophy.

 

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2015 Executive Compensation—Fixed vs. Variable

Compensation

 

LOGO

 

2015 Executive Compensation—Cash vs. Equity

Compensation

 

LOGO

 

How We Determine Executive Compensation

 

The Compensation Committee is responsible for establishing and implementing the Company’s compensation philosophy and objectives. The Compensation Committee, which is comprised exclusively of independent directors, oversees all compensation and benefit programs and actions that affect our named executive officers. This includes setting salaries for, granting annual and long-term incentive awards to and approving the employment agreements with the named executive officers.

 

The Compensation Committee’s duties include, but are not limited to:

 

   

Reviewing key employee compensation policies, plans and programs (including through the engagement of the Compensation Committee’s independent compensation consultants (currently Exequity LLP (“Exequity”)));

 

   

Monitoring performance and compensation of the Company’s officers and other key employees;

 

   

Preparing recommendations and periodic reports to the Board of Directors concerning these matters;

 

   

Administering the Company’s incentive programs; and

 

   

Reviewing this Compensation Discussion and Analysis and recommending to the Board of Directors its inclusion in this Proxy Statement.

 

Role of Independent Compensation Consultants in Compensation Decisions

 

The Compensation Committee has directly engaged Exequity as an independent compensation consultant to advise the Compensation Committee on executive compensation matters. Exequity reports directly to the Compensation Committee on this assignment. A representative of Exequity attends meetings as requested by the Compensation Committee and provides advice directly to the Compensation Committee from time to time, although he did not attend any meetings in 2015. Exequity has not provided other services to the Company since it was engaged by the Compensation Committee and we do not currently expect that Exequity will provide other services to the Company while serving as the Compensation Committee’s consultant. Exequity has provided the Compensation Committee with a report covering factors specified in SEC rules regarding potential conflicts of interest arising from the consultant’s work. Based on the report and discussions with Exequity, the Company determined that the work of Exequity in 2015 did not raise any conflicts of interest.

 

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Frederic W. Cook & Co., Inc. (“FWC”) has been engaged by management from time to time to assist in developing the companywide compensation program, including the Company’s equity and cash incentive plans. At the request of and with significant input from management, FWC has periodically presented recommendations to the Compensation Committee regarding, among other things, the design and operation of the Company’s long-term incentive compensation plan (including the selection of performance criteria and the setting of performance goals). FWC has provided the Compensation Committee with a report covering factors specified in SEC rules regarding potential conflicts of interest arising from the consultant’s work. Based on the report and discussions with FWC, the Company determined that the work of FWC in 2015 did not raise any conflicts of interest.

 

Role of Executive Officers in Compensation Decisions

 

Our management provides on-going recommendations to the Compensation Committee regarding our compensation programs. The recommendations include executive compensation plans, designs and strategies, performance goals and criteria for both annual and long-term incentive plans and individual compensation actions for management. Our management provides its recommendations in conjunction with, and based on information gathered from, external compensation consultants engaged by management (currently FWC) and other available market information as well as from internal resources. At the invitation of the Compensation Committee, members of the senior management attend meetings and make presentations to the Compensation Committee. The Compensation Committee also meets regularly in executive session, without members of management present. The Company’s Chief Executive Officer does not participate in Committee discussions in which his compensation is discussed.

 

Use of Employment Agreements and Competitive Assessments in Compensation Determinations

 

We have entered into multi-year employment agreements with each of our named executive officers. These employment agreements serve as the starting point for the Compensation Committee’s compensation-setting processes. We believe that it is in the best interests of the Company to enter into multi-year employment agreements with our named executive officers because the agreements foster long-term retention, while still allowing the Compensation Committee to exercise considerable discretion in designing incentive compensation programs and ultimately in setting executive officers’ long-term incentive grant values (irrespective of the target amounts provided in employment agreements). In addition, we believe that our use of multi-year employment agreements assists us in our recruiting efforts because such agreements are common at the other entertainment companies with whom we compete for executive talent.

 

From time to time, the Company has engaged external compensation consultants (such as FWC) to conduct competitive assessments regarding our executive officers. The purpose of these assessments is to assist us in developing and implementing compensation programs that are generally competitive with those of other companies in the entertainment industry and other companies with whom we compete for executive talent. We generally strive for the total compensation packages for our executive officers to provide target opportunities in the median range of similar organizations (with consideration given to the Company’s smaller size relative to such companies). Individually, our executive officers have the opportunity to earn at above-target levels for superior performance or below-target levels if the Company fails to achieve its performance goals. After determining the appropriate level of compensation for each executive officer, we enter into a multi-year employment agreement with that officer.

 

Each executive’s employment agreement specifies the annual base salary that the executive will be entitled to receive during the term of the agreement, as well as the benefit plans in which the executive will participate and the other perquisites that the executive will be eligible to receive. In addition, each agreement sets forth, as applicable, the executive’s annual and long-term incentive compensation target opportunities, subject in all instances to the discretion of the Compensation Committee in granting such awards. Each agreement also specifies the post-termination benefits that will be received by each executive (including the treatment of any unvested equity awards) upon involuntary termination (with or without cause), constructive termination, death, disability, termination following a change in control of the Company and, in some instances, upon expiration of the employment agreement.

 

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To inform its decisions on compensation levels and compensation program structure, the Compensation Committee periodically considers the competitive practices of a peer group of selected media companies and consumer entertainment content developers. The Compensation Committee believes that the practices of the peer group are relevant for gauging labor-market competitiveness, because these entities are similar to the Company in their business characteristics, pay structures and general complexity. However, the Compensation Committee uses this information as merely one perspective and not as the sole determinant in its decision-making process. For the last four years, the peer group consisted of the following 11 companies:

 

Activision Blizzard, Inc.

   Scripps Networks Interactive, Inc.

CBS Corporation

   Take-Two Interactive Software, Inc.

Discovery Communications, Inc.

   Time Warner Inc.

Electronic Arts Inc.

   Viacom Inc.

Lions Gate Entertainment Corp.

   The Walt Disney Company

Twenty-First Century Fox, Inc. (formerly News Corporation)

  

 

In 2015 and 2016, the Compensation Committee reviewed tally sheets for each named executive officer, which were prepared by FWC. These tally sheets showed such items as (i) targeted value of base salary, annual incentive awards and long-term incentive awards, (ii) actual realized value of each compensation element for the most recent three years, (iii) the amount of unrealized value from prior equity incentive grants and (iv) the amounts that the executive would receive upon various termination scenarios (including in connection with a change in control). The tally sheets provide background for the Compensation Committee to make executive compensation determinations, but they do not have a specific impact on such determinations.

 

Analysis of Executive Compensation Elements

 

Annual Base Salary and Other Cash Payments

 

We pay base salaries to our named executive officers to compensate them for services rendered during the year and to provide a base level of monthly income that is not subject to performance-related risk. The base salary for each of our named executive officers is specified in his or her respective employment agreement. The Compensation Committee generally reviews the named executive officers’ salaries periodically, such as at the time of a substantial change in responsibilities or upon entering into a new employment agreement. In reviewing an executive’s salary, the Compensation Committee generally considers, among other things:

 

   

market data provided by an external consultant with respect to comparable positions; and

 

   

the executive’s performance, experience and advancement potential, as well as internal pay equity considerations.

 

The Compensation Committee adjusts salary levels when it is deemed appropriate in comparison to peer practice and in relation to the other elements of the executive compensation package. As of December 31, 2015, our named executive officers (other than Mr. Coleman and Mr. Francis, who left the Company in January and December, 2015, respectively) had the following base salaries (as provided for in their respective employment agreements):

 

Named Executive Officer

   Annual Salary  

Jeffrey Katzenberg

   $ 2,500,000   

Ann Daly

     1,500,000   

Fazal Merchant

     700,000   

Andrew Chang

     700,000 (1) 

Edward Aleman

     400,000   

 

(1) 

Mr. Chang’s base salary was increased from $550,000 to $700,000, effective as of July 14, 2015, in connection with entry into his new employment agreement, as discussed in greater detail in the section entitled “—2015 Compensation Actions—New Employment Agreement with Andrew Chang.”

 

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Mr. Francis’ employment agreement, which expired by its terms in December 2015, provided for an annual base salary of $1,200,000. Mr. Coleman’s employment agreement provided for an annual base salary of $2,600,000.

 

In order to compensate them for, among other things, amounts that they were required to forfeit upon leaving their prior employment and joining the Company, the Compensation Committee also agreed to make the following cash payments to Mr. Merchant and Mr. Aleman, in each case assuming he remains employed by the Company on the applicable dates: Mr. Merchant—(i) $1,000,000 on December 31, 2014, (ii) 1,300,000 on December 31, 2015 and (iii) $700,000 on December 31, 2016; Mr. Aleman—(i) $300,000 on January 2, 2015, (ii) $175,000 on January 2, 2016 and (iii) $175,000 on January 2, 2017. The first two cash payments were made to each of Messrs. Merchant and Aleman in accordance with the terms of their respective employment agreements. Mr. Aleman forfeited the third cash payment upon his separation from the Company.

 

Annual Incentive Awards

 

During 2015, the named executive officers (other than Mr. Coleman) were eligible to receive annual performance-based incentive compensation under the Company’s 2015 Annual Incentive Plan (the “Annual Incentive Plan”). The Annual Incentive Plan allows for annual bonus awards payable in cash upon the satisfaction of performance goals established by the Compensation Committee.

 

Each named executive officer’s employment agreement (other than Mr. Coleman’s) specifies the annual incentive compensation target award for which the executive is eligible, subject in all instances to the discretion of the Compensation Committee. For the other named executive officers, as of December 31, 2015 (for Mr. Francis, during 2015 prior to the expiration of his employment agreement) their respective employment agreements provided for the following target amounts:

 

Named Executive Officer

   Target  

Jeffrey Katzenberg

   $ 4,000,000   

Ann Daly

     1,500,000   

Fazal Merchant

     700,000   

Andrew Chang

     325,000 (1) 

Edward Aleman

     200,000   

Michael Francis

     1,200,000   

 

(1) 

Mr. Chang’s target annual incentive award was increased from $220,000 to $325,000, effective as of July 14, 2015, in connection with entry into his new employment agreement, as discussed in greater detail in the section entitled “—2015 Compensation Actions—New Employment Agreement with Andrew Chang.”

 

We provide annual incentive payments to motivate and reward our named executive officers for achievement of our annual performance goals. Through the Company’s practice, the Compensation Committee adopts maximum annual bonus amounts payable to each named executive officer. Generally, this maximum amount is 200% of the target amount specified in the officer’s employment agreement; although in the case of Mr. Katzenberg, based on the Compensation Committee’s analysis of competitive data, the maximum amount is 150% of target. The Compensation Committee generally adopts performance criteria for our annual incentive plans that, at the time of adoption, we believe reflect an appropriately difficult yet achievable level of performance for payouts at “target” level and superior performance for payouts at the maximum level. The range for each named executive officer was determined based on individual considerations and external market data for peer media companies and consumer entertainment content developers. Following the end of each calendar year, the Compensation Committee determines the incentive compensation award paid (if any) based upon achievement relative to the established performance goals. For a discussion of the 2015 performance targets, see “—2015 Compensation Actions—Annual Incentive Awards.”

 

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Long-Term Incentive Compensation

 

The Company’s First Amended Plan provides the Compensation Committee with flexibility to grant awards to the named executive officers in a variety of forms. These include stock appreciation rights (or “SARs”), stock options, restricted stock, restricted stock units and performance compensation awards. Awards may vest depending upon continued service with the Company or the achievement of specified performance criteria. Generally, we have provided long-term incentive grants using a combination of time-vested awards (such as restricted stock or restricted stock units) and awards with performance-based vesting conditions or with value heavily dependent on Company stock performance (such as SARs or performance compensation awards). For a more detailed discussion of actions taken in 2015, please see “—2015 Compensation Actions.”

 

These awards are intended to incentivize executives to increase long-term stockholder value and align executives’ interests with those of other stockholders by promoting equity ownership. We believe that providing grants that combine both time-vested awards and performance-vested awards effectively balances our objective of focusing the named executive officers on delivering long-term stockholder-value creation, with our objective of providing compensation elements that retain and motivate our executive officers. Restricted stock units serve both to reward and retain executives, since they have value as of the grant date, but have a greater value to the extent the stock price increases over the term of the award. Performance compensation awards (which are essentially performance-vested restricted stock units) generally increase in value based on increased operating results and stock-price performance. Performance compensation awards serve to reward and retain executives, although they vest only upon the achievement of specified performance criteria.

 

Each named executive officer’s employment agreement specifies a target value of the long-term equity incentive compensation award for which the executive is eligible each year, subject in all instances to the discretion of the Compensation Committee. The target value was determined based on, among other things, external market data. In making its award determination, the Compensation Committee specifies the performance goals (if any) applicable to any grant. For the named executive officers (other than Mr. Coleman), as of December 31, 2015 (for Mr. Francis, December 8, 2015), their respective employment agreements provided for the following target grant-date values:

 

Named Executive Officers

   Target Grant-
Date Value
 

Jeffrey Katzenberg

   $ 4,500,000   

Ann Daly

     3,500,000   

Fazal Merchant

     1,200,000   

Andrew Chang

     750,000 (1) 

Edward Aleman

     300,000   

Michael Francis

     2,250,000   

 

(1) 

Mr. Chang’s target grant-date value was increased from $330,000 to $750,000, effective as of July 14, 2015, in connection with entry into his new employment agreement.

 

In computing the grant-date value of time-vested restricted stock units and performance compensation awards, the Company values each share at the closing price on the date of grant and assumes that performance compensation awards will be earned based on target performance levels.

 

While each named executive officer’s employment agreement specifies the target grant-date value of long-term incentive awards, the actual amount realized from any award by an executive will be dependent upon, among other things, such executive’s continued tenure with the Company, the achievement of applicable performance goals (if any) and the Company’s stock-price performance.

 

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Post-Termination Benefits

 

Each named executive officer’s employment agreement provides for specified termination benefits upon the executive’s involuntary termination without cause or termination for good reason, death or disability, upon the expiration of the agreement (in certain instances) and upon a change in control. These benefits were negotiated on an arm’s-length basis between each of the executives and the Company with reference to general business and entertainment-industry standards. These provisions are intended to provide each named executive officer with compensation and other benefits for some period of time following termination of employment. With respect to the benefits applicable upon a change in control, we believe that the benefits also provide appropriate incentives for the executive to remain with, and focus on, managing the Company in the event of a possible acquisition of the Company. None of the named executive officers’ employment agreements provide for benefits based solely upon the occurrence of a change in control (otherwise known as “single-trigger benefits”) nor do they provide for tax gross-ups in the event that the executive officer is required to pay an excise tax pursuant to Section 280G of the Internal Revenue Code.

 

We have provided a detailed discussion of the post-termination benefits set forth in each named executive officer’s employment agreement in the section entitled “Executive Compensation Information—Estimated Executive Benefits and Payments Upon Termination or Change in Control” below.

 

Perquisites and Other Personal Benefits

 

Each named executive officer’s employment agreement specifies that the executive will generally be entitled to receive the perquisites provided to the Company’s other senior executives. In addition, we provide a variety of welfare and benefits plans available to other employees in which the named executive officers participate. We also make financial and tax consulting services available to our named executive officers (other than Mr. Katzenberg). We have also agreed (either explicitly in the employment agreement or through Company policy) to reimburse each executive for all costs and expenses (including reasonable legal fees) in connection with the negotiation of each executive’s employment agreement. Under his employment agreement, Mr. Katzenberg is also entitled to retain reasonable security personnel at the Company’s expense. We believe that the perquisites and other benefits provided are competitive and consistent with our overall executive compensation program and better enable us to attract and retain superior employees for key positions.

 

Deferred Compensation Plan

 

The Company maintains a deferred compensation plan in which the named executive officers, along with other highly compensated employees, are eligible to participate. The plan was implemented to provide the Company’s senior employees with a means for accumulating tax-deferred savings for retirement. Under the plan, participants may voluntarily elect to defer payment of their salary or annual bonus, and such deferrals are placed in accounts established for the participants. Each participant’s account under the plan is credited with earnings, at periodic intervals, at a rate equal to the actual rate of return over the relevant period of the investment fund or funds or index or indices selected by the participant from the range of investment vehicles offered under the plan. The investment funds currently offered are generally the same as those offered under the Company’s 401(k) plan. Other than credited earnings on employee deferrals, the Company does not currently make any contributions to the plan. Other than Mr. Chang, none of our named executive officers currently participate in the plan.

 

The “Summary Compensation Table and “All Other Compensation table provide greater detail regarding the various perquisites provided to the named executive officers during 2015.

 

2015 Compensation Actions

 

2015 Restructuring Plan

 

On January 22, 2015, the Company announced restructuring initiatives (the “2015 Restructuring Plan”) involving the Company’s core feature animation business. The Company also made changes in its senior

 

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leadership team and its feature film slate. In connection with the 2015 Restructuring Plan, Mr. Coleman retired from the Company on January 30, 2015. For more information regarding the payments and benefits that Mr. Coleman received or will receive in connection with his departure, please see the section entitled Executive Compensation Information—Estimated Executive Benefits and Payments Upon Termination or Change in Control.”

 

Base Salary

 

As described above, the Compensation Committee’s general practice is to review the named executive officers’ salaries periodically, such as at the time of a substantial change in responsibilities or upon entering into a new employment agreement. As described below, the Compensation Committee entered into a new employment agreement with Mr. Chang in 2015 and made changes to his salary at such time. See “—New Employment Agreement with Andrew Chang” below. No changes were made to the salaries of the other named executive officers during 2015.

 

Annual Incentive Awards

 

As described above under “—Analysis of Executive Compensation Elements—Annual Incentive Awards,” each of our named executive officers’ employment agreements (other than Mr. Coleman’s) provides for annual incentive compensation payable in cash upon the satisfaction of performance goals established by the Compensation Committee. In February 2015, the Compensation Committee approved an incentive cash bonus plan for calendar year 2015 performance for each of our named executive officers (other than Mr. Coleman). The objective of providing cash-based annual bonuses is to reward the named executive officers for achievement of annual financial operating goals while balancing the multi-year perspective of long-term equity incentive grants.

 

As described above, the bonus targets for the named executive officers vary according to the terms of their respective employment agreements. For calendar year 2015 performance, the Compensation Committee determined that 100% of the bonus amount for each of the participating executive officers would depend upon the achievement of the Company’s operating income performance goal for the year ended December 31, 2015 as reported in the Company’s audited financial statements and as adjusted to exclude the effects of various items, including changes in accounting principles, one-time or extraordinary items, recapitalization and the effects of acquisitions and divestitures. The Compensation Committee believes that operating income is an appropriate measure of short-term performance. The Compensation Committee also selected operating income as the performance metric for the annual cash incentive awards because the Company’s bonus plan applicable to all other employees currently uses operating income as its performance metric. The Compensation Committee selected the target level of performance based upon the Company’s expected 2015 performance (as reflected in the Company’s internal operating budget). The threshold and maximum performance levels reflect operating income results that are 50% less and 80% greater, respectively.

 

The Compensation Committee also provided that no bonuses would be paid to the named executive officers if bonuses were not paid under the Company bonus plan applicable to other employees. In addition, the Compensation Committee retained negative discretion to reduce the bonuses that would be payable to the named executive officers regardless of the Company’s 2015 performance. The table below shows the Company’s adjusted operating income for 2015 and the percentage of the target payout resulting from such results. In computing the Company’s adjusted operating income for 2015, actual operating income as reported in the Company’s financial statements was adjusted to exclude, among other things, the effects of certain restructuring charges taken by the Company during 2015 as well as expenses from certain technology initiatives. Based upon these results, each participating named executive officer was entitled to receive a bonus for calendar year 2015 equal to 200% (in the case of Mr. Katzenberg, 150%) of target. Based upon on the Compensation Committee’s assessment of the individual performance of Mr. Francis and Mr. Aleman, the Compensation Committee exercised negative discretion to reduce each of Mr. Francis’ and Mr. Aleman’s bonus to 100% of target. The Compensation Committee did not exercise negative discretion with respect to any other individual or the participating named executive officers as a group.

 

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2015 Annual Incentive Award Program

 

Performance Criteria(1)

   Threshold
(50%
Payout)
     Target
(100%
Payout)
     Maximum
(200%
Payout)(2)
     Actual
Achievement
in 2015
     Calculated
Payout as a
Percentage of
Target
Opportunity
 

Adjusted operating income

   $ 25.0 million       $ 50.0 million       $ 90.0 million       $ 90.5 million         200 %(2)(3) 

 

(1) 

For adjusted operating income achieved between any two of the three percentages specified, the amounts earned will be determined by linear interpolation between the two corresponding adjusted operating income levels.

(2) 

In the case of Mr. Katzenberg, his maximum payout was 150% at adjusted operating income of $70.0 million.

(3) 

The Compensation Committee exercised negative discretion to reduce each of Mr. Francis’ and Mr. Aleman’s bonus to 100% of target.

 

Long-Term Incentive Compensation

 

Each named executive officer’s employment agreement provides that the executive is eligible for annual long-term equity incentive grants having a specified target grant-date value, subject to the Compensation Committee’s discretion.

 

The Compensation Committee’s current policy is generally to consider equity awards to the named executive officers at the time of a regularly scheduled Compensation Committee meeting, with each grant date occurring during the trading window established for Company insiders following the release of quarterly earnings. In 2015, the performance compensation awards and the time-vested RSU grants were made at the Compensation Committee’s regularly scheduled meetings occurring in the first and fourth calendar quarters, respectively.

 

In considering the 2015 grants, the Compensation Committee decided that the annual grants to our named executive officers (other than Mr. Coleman, who left the Company in January 2015 and hence did not receive any grants) would be allocated 75% to time-vested restricted stock units and 25% to performance compensation awards. The Compensation Committee believes that these award allocations appropriately reflect the Company’s objective of providing competitive compensation programs, while also tailoring compensation to the roles and specific considerations of individual named executive officers. The time-vested awards granted to the named executive officers in 2013 and 2014 also contained performance criteria in order to satisfy the requirements of Section 162(m) of the Internal Revenue Code. However, in 2015 the Compensation Committee concluded that any potential loss of tax deductibility was likely to be mitigated by the Company’s net operating losses and did not include such performance criteria, which the Compensation Committee believed was consistent with the named executive officers’ expectations.

 

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In February 2015, the Compensation Committee granted performance compensation awards of restricted stock units to Mr. Katzenberg, Ms. Daly, Mr. Francis, Mr. Merchant, Mr. Chang and Mr. Aleman which had an intended grant-date fair value (at target levels) as shown:

 

Named Executive Officer

   Target Grant-Date
Value of Award
     Performance
Compensation
Awards
(# of Shares)
 
      Target      Maximum  

Jeffrey Katzenberg

   $ 1,125,000         52,545         78,817   

Ann Daly

     875,000         40,868         81,736   

Fazal Merchant

     300,000         14,012         28,024   

Andrew Chang

     82,500         3,853         7,706   

Edward Aleman

     75,000         3,503         7,006   

Michael Francis

     562,500         26,272         52,544   

 

The performance compensation awards will vest with respect to some or all of the awards, depending on the achievement of the specified performance criteria for the three-year performance period ending December 31, 2017. In computing the grant value of the performance compensation awards, the awards were valued at the target number of shares. However, in recognition of the at-risk nature of the awards, each executive may earn up to a maximum of 200% (in the case of Mr. Katzenberg, 150%) of target, depending upon the achievement of the performance criteria. The performance criteria applicable to these awards are the Company’s average annual return on equity (“ROE”), revenues and operating cash flow for the three-year period ending December 31, 2017. Each performance criterion is weighted equally and one-third of the target number of shares subject to the performance compensation award will vest with respect to some or all of that portion of the award, depending on the achievement of the performance criterion to which the portion of the award relates. The table below shows for each of the criteria the respective threshold, target and maximum amounts applicable to such criteria.

 

Performance Criteria

   Weighting     2015-2017 Performance Goals
(Dollars in millions)
 
     Threshold     Target     Maximum  

Adjusted Revenue

     33.3   $ 900      $ 1,000      $ 1,100   

Adjusted Operating Cash Flow

     33.3   $ 40      $ 90      $ 140   

Adjusted ROE

     33.3     1.0     4.0     7.0

 

For average annual amounts below the threshold with respect to a specific criterion, none of the award allocated to such criterion will be earned. For average annual amounts between any two of the threshold, target and maximum amounts specified, the amount earned will be determined by linear interpolation between the two corresponding levels. For purposes of the awards, (i) annual ROE is defined as the Company’s earnings before interest and taxes (“EBIT”) expressed as a percentage of the average of the Company’s stockholder’s equity at the beginning and end of the year, (ii) revenues will be the Company’s total revenues as reported in its consolidated statements of operations and (iii) operating cash flow will be the Company’s net cash provided by operating activities as reported in its consolidated statements of cash flows. The computation of ROE, revenues and operating cash flow will exclude a number of items, as applicable, including (i) the effects of the Company’s tax sharing agreement with a former stockholder, (ii) the portion of film amortization expense that represents interest expense capitalized to films and other productions, (iii) the effects of share repurchases and (iv) the compensation expense associated with the awards. The Compensation Committee believes that the three criteria selected will provide incentives to the named executive officers to appropriately balance the objectives of increasing overall revenues while still focusing on long-term shareholder value and cash flow.

 

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In October 2015, the Compensation Committee approved the time-based grants shown below to the following named executive officers (which had an intended grant-date fair value as shown):

 

Named Executive Officer

   Grant-Date
Value of Awards
     Restricted  Stock
Units
(# of Shares)
 

Jeffrey Katzenberg

   $ 3,375,000         142,585   

Ann Daly

     2,625,000         110,899   

Fazal Merchant

     900,000         38,022   

Andrew Chang

     562,500         23,764   

Edward Aleman

     225,000         9,505   

 

The awards will vest in four equal annual installments on the first, second, third and fourth anniversaries of the date of grant, subject generally to the executive’s continued employment on the applicable vesting dates. Because Mr. Francis had already announced his intention to leave the Company prior to the grant date for these awards, he did not receive a time-based grant in 2015.

 

New Employment Agreement with Andrew Chang

 

On July 10, 2015, the Compensation Committee approved, and the Company subsequently entered into, a new employment agreement with Mr. Chang to provide incentives for him to remain with the Company beyond January 1, 2016, which was the expiration date of his prior agreement. The new employment agreement supersedes and replaces the prior employment agreement and provides for Mr. Chang’s continued employment with the Company until July 14, 2019. The terms and conditions of the new employment agreement were determined through arm’s-length negotiation with Mr. Chang.

 

In recognition of his long tenure in his current position and based upon, among other things, review of competitive market data and consideration of internal pay equity, the new employment agreement provides that Mr. Chang’s annual base salary increased from $550,000 to $700,000. His target annual bonus was increased from $220,000 to $325,000, although his target annual bonus for 2015 was pro-rated based on the date of his new employment agreement. His target annual long-term incentive compensation was increased from $330,000 to $750,000, although the Compensation Committee retains ultimate discretion with respect to the amount and form of such awards.

 

2016 Compensation Actions

 

October 2012 Performance Compensation Awards

 

In October 2012, the Compensation Committee granted performance compensation awards to Mr. Katzenberg, Ms. Daly and Mr. Chang as part of their annual long-term incentive awards. The performance compensation awards were eligible to vest, depending on the Company’s average annual ROE for the three-year performance period ending December 31, 2015. The threshold average annual ROE for these awards was 4.1%. In February 2016, the Compensation Committee certified that the Company achieved average annual ROE of (0.8)% for the performance period and, as a result, all of the awards were cancelled without payment.

 

October 2014 Time-Based Restricted Stock and Restricted Stock Units

 

In October 2014, the Compensation Committee granted time-based restricted stock units to Mr. Katzenberg, Ms. Daly, Mr. Francis and Mr. Merchant, which, in each case, included an initial performance hurdle based on the Company achieving positive EBIT for the year ended December 31, 2015 or for the two-year period ended December 31, 2016. Provided that this requirement is satisfied, the awards vest in four equal annual installments, with the first vesting date occurring on the date in 2016 when the Compensation Committee certifies that the performance requirement has been satisfied and subsequent vesting dates occurring on the second, third and fourth anniversaries of the date of grant. In February 2016, the Compensation Committee certified that the Company achieved positive EBIT for the year ended December 31, 2015 and, as a result, the first installment of

 

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the awards to Mr. Katzenberg, Ms. Daly, Mr. Francis and Mr. Merchant vested. The remaining unvested portions of the award to Mr. Francis were cancelled upon the termination of his employment on December 8, 2015.

 

February 2016 Grant of Performance Compensation Awards

 

In February 2016, the Compensation Committee granted performance compensation awards of restricted stock units to Mr. Katzenberg, Ms. Daly, Mr. Merchant and Mr. Chang which had an intended grant-date fair value (at target levels) as shown:

 

Named Executive Officer

   Target Grant-Date
Value of Award
     Performance
Compensation
Awards
(# of Shares)
 
      Target      Maximum  

Jeffrey Katzenberg

   $ 1,125,000         45,180         67,770   

Ann Daly

     875,000         35,140         70,280   

Fazal Merchant

     300,000         12,048         24,096   

Andrew Chang

     187,500         7,530         15,060   

 

The performance compensation awards will vest with respect to some or all of the awards, depending on the achievement of the specified performance criteria for the three-year performance period ending December 31, 2018. In computing the grant value of the performance compensation awards, the awards were valued at the target number of shares. However, in recognition of the at-risk nature of the awards, each executive may earn up to a maximum of 200% (in the case of Mr. Katzenberg, 150%) of target, depending upon the achievement of the performance criteria. The performance criteria applicable to these awards are the Company’s average annual ROE, revenues and operating cash flow for the three-year period ending December 31, 2018. Each performance criterion is weighted equally and one-third of the target number of shares subject to the performance compensation award will vest with respect to some or all of that portion of the award, depending on the achievement of the performance criterion to which the portion of the award relates. The table below shows for each of the criteria the respective threshold, target and maximum amounts applicable to such criteria.

 

Performance Criteria

   Weighting     2016-2018 Performance Goals
(Dollars in millions)
 
     Threshold     Target     Maximum  

Adjusted Revenue

     33.3   $ 965      $ 1,065      $ 1,165   

Adjusted Operating Cash Flow

     33.3   $ 70      $ 120      $ 170   

Adjusted ROE

     33.3     3.0     6.0     9.0

 

For average annual amounts below the threshold with respect to a specific criterion, none of the portion of the award allocated to such criterion will be earned. For average annual amounts between any two of the threshold, target and maximum amounts specified, the amount earned will be determined by linear interpolation between the two corresponding levels. For purposes of the awards, (i) annual ROE is defined as the Company’s EBIT expressed as a percentage of the average of the Company’s stockholder’s equity at the beginning and end of the year, (ii) revenues will be the Company’s total revenues as reported in its consolidated statements of operations and (iii) operating cash flow will be the Company’s net cash provided by operating activities as reported in its consolidated statements of cash flows. The computation of ROE, revenues and operating cash flow will exclude a number of items, as applicable, including (i) the effects of the Company’s tax sharing agreement with a former stockholder, (ii) the portion of film amortization expense that represents interest expense capitalized to films and other productions, (iii) the effects of share repurchases and (iv) the compensation expense associated with the awards. The Compensation Committee believes that the three criteria selected will provide incentives to the named executive officers to appropriately balance the objectives of increasing overall revenues while still focusing on long-term shareholder value and cash flow.

 

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Tax Implications

 

Deductibility of Executive Compensation

 

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m). Section 162(m) provides that the Company may not deduct compensation of more than $1,000,000 paid in any year to the Chief Executive Officer or any of the three other most highly compensated officers (excluding the Chief Financial Officer), unless the compensation qualifies as “performance based compensation” under Section 162(m). We have considered the potential impact of Section 162(m) on the Company’s compensation plans and have determined that it is the Company’s preference to qualify its executives’ compensation for deductibility under Section 162(m), to the extent the Compensation Committee believes it is consistent with the Company’s best interests. The Company’s compensation plans have generally been designed to permit the Compensation Committee to grant awards that qualify for deductibility under Section 162(m). While the Compensation Committee considers deductibility as one factor in determining executive compensation, the Committee believes that stockholder interests are best served by the Committee retaining the flexibility to approve compensation that is not deductible by the Company for tax purposes.

 

Other Items

 

Insider Trading Policy (Including Anti-Hedging and Anti-Pledging)

 

Our Insider Trading Policy applies to all transactions in our securities, including common stock, restricted stock, restricted stock units, performance compensation awards, stock options and stock appreciation rights. It also applies to any other securities we may issue from time to time, as well as to derivative securities relating to our stock, whether or not issued by us, such as exchange-traded options.

 

We believe it is improper and inappropriate for any of our directors, officers or employees to engage in short-term or speculative transactions involving Company securities. Accordingly, the Insider Trading Policy prohibits all employees from entering into a variety of activities with respect to our securities, including:

 

   

hedging transactions, such as buying puts or calls with respect to our stock;

 

   

purchasing Company securities on margin or pledging Company securities as collateral for loans; and

 

   

short sales.

 

Stock Ownership Guidelines

 

As noted above, an important element of our compensation philosophy is to align the long-term interests of executive officers with those of our stockholders by providing appropriate incentives. In furtherance of this objective, the Compensation Committee adopted stock ownership guidelines in February 2011, which are applicable to the named executive officers. The named executive officers have five years to comply, starting from the adoption of the guidelines or, if later, from becoming a named executive officer. Under the guidelines, named executive officers are required to hold shares of Company stock having a value equal to the following percentages of their base salaries: Chief Executive Officer—600%; President and Chief Operating Officer—300%; and all other named executive officers—200%. For these purposes, any unvested restricted stock units and restricted stock (but not outstanding vested or unvested stock options, SARs or unearned performance compensation awards) are treated as held by the officer.

 

Compensation Committee Charter

 

The Compensation Committee acts pursuant to a written charter, which the Compensation Committee reviews on an annual basis. From time to time, the Compensation Committee may recommend that the Board of Directors approve revisions to the charter as appropriate to reflect evolving practices or changes in legal or regulatory requirements.

 

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COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

THE COMPENSATION COMMITTEE

 

Mellody Hobson, Chair

Lucian Grainge

Mary Agnes (“Maggie”) Wilderotter

 

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EXECUTIVE COMPENSATION INFORMATION

 

Summary Compensation Table

 

DreamWorks Animation compensates its executive officers pursuant to their respective employment agreements. For a further discussion of the Company’s underlying compensation policies and decisions, see “Compensation Discussion and Analysis.” The following Summary Compensation Table sets forth summary compensation information for our Chief Executive Officer and Chief Financial Officer and the three most highly compensated executive officers, other than our Chief Executive Officer and Chief Financial Officer, for the year ended December 31, 2015, as well as for Mr. Coleman, who served as our Vice Chairman during January 2015, and Mr. Francis, who served as our Chief Global Brand Officer until December 8, 2015 (collectively, the “named executive officers”). Mr. Coleman’s and Mr. Francis’s employment with the Company terminated as of January 30, 2015 and December 8, 2015, respectively. This Summary Compensation Table is accompanied by an “All Other Compensation” table, a Grants of Plan-Based Awards” table and additional narrative discussion as necessary to assist in the understanding of the information presented in each of such tables.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position

   Year      Salary
($)
     Bonus
($)
    Stock
Awards
($)(1)
     Non-Equity
Incentive
Plan
Compensation
($)(2)
     All Other
Compensation
($)(3)
     Total
($)
 

Jeffrey Katzenberg(4)

     2015       $ 2,500,000       $ —       $ 4,499,975       $ 6,000,000       $ 526,919       $ 13,526,894   

Chief Executive Officer

     2014       $ 2,500,000       $ —       $ 3,374,985       $ —        $ 506,136       $ 6,381,121   
     2013       $ 2,500,000       $ —       $ 4,499,954       $ 6,000,000       $ 483,248       $ 13,483,202   

Ann Daly

     2015       $ 1,500,000       $ —       $ 3,499,963       $ 3,000,000       $ 27,000       $ 8,026,963   

President

     2014       $ 1,500,000       $ —       $ 2,624,986       $ —        $ 26,369       $ 4,151,355   
     2013       $ 1,500,000       $ —       $ 3,499,957       $ 3,000,000       $ 25,170       $ 8,025,127   

Fazal Merchant(5)

     2015       $ 700,000       $ 1,300,000 (6)    $ 1,199,978       $ 1,400,000       $ 48,858       $ 4,648,836   

Chief Financial Officer

     2014       $ 188,462       $ 1,350,000 (6)    $ 899,981       $ —        $ 42,588       $ 2,481,031   

Andrew Chang

     2015       $ 612,885       $ —       $ 644,987       $ 538,384       $ 34,057       $ 1,830,313   

General Counsel

     2014       $ 550,000       $ 85,000 (7)    $ 247,487       $ —        $ 26,070       $ 908,557   
     2013       $ 546,192       $ 85,000 (7)    $ 329,933       $ 440,000       $ 25,170       $ 1,426,295   

Edward Aleman(5)

     2015       $ 400,000       $ 300,000 (8)    $ 299,982       $ 200,000       $ 16,409       $ 1,216,391   

Former Chief Accounting Officer

                   

Lewis W. Coleman(4)(9)

     2015       $ 220,000       $ —       $ —        $ —        $ 2,420,890       $ 2,640,890   

Former Vice Chairman, President and Chief Financial Officer

     2014       $ 2,274,615       $ 108,334 (10)    $ 999,999       $ —        $ 63,399       $ 3,446,347   
     2013       $ 2,000,000       $ 108,333 (10)    $ 999,997       $ —        $ 38,010       $ 3,146,340   

Michael Francis

     2015       $ 1,186,154       $ —       $ 562,484       $ 1,200,000       $ 286,934       $ 3,235,572   

Former Chief Global Brand Officer

     2014       $ 1,200,000       $ —       $ 1,687,493       $ —        $ 367,383       $ 3,254,876   
     2013       $ 1,089,231       $ —        $ 2,249,960       $ 2,400,000       $ 357,901       $ 6,097,092   

 

(1) 

The amounts shown represent the aggregate grant-date fair value of the award made during each respective year, as computed in accordance with Accounting Standards Codification 718 “Compensation-Stock Compensation” (“ASC 718”). For a further discussion of the assumptions used in the calculation of the grant-date fair values for each year (for all applicable grants of equity awards) pursuant to ASC 718, please see “Financial Statements and Supplemental Data—Notes to Consolidated Financial Statements—Note 18 Stock-Based Compensation” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. For further discussion of grants made in 2015, see the accompanying Grants of Plan-Based Awards” table. As discussed above in “Compensation Discussion and Analysis,” each of the named executive officers (other than Mr. Coleman and, with respect to time-vested awards, Mr. Francis) received equity awards in 2015 comprised of time-vested restricted stock units and performance compensation awards that are subject to the achievement of certain performance hurdles for the three-year period ending December 31, 2017. The amounts included in the column for 2015 represent the “target” level of performance for the performance compensation awards. The aggregate value of this performance-based award at the maximum level of performance would be as follows: Jeffrey Katzenberg—$1,687,472; Ann Daly—$1,749,968; Fazal Merchant—$599,994; Andrew Chang—$164,985; Edward Aleman—$149,998; and Michael Francis—$1,124,967. See Compensation Discussion and Analysis—2015 Compensation Actions—Long-Term Incentive Compensation.

(2) 

The amounts reflected in “Non-Equity Incentive Plan Compensation” column represent amounts earned during each respective year under the Company’s annual performance-based incentive program. See Compensation Discussion and Analysis—2015 Compensation Actions—Annual Incentive Awards.

(3) 

The components of “All Other Compensation” for 2015 are detailed below in the All Other Compensation” table. The amounts shown do not include life insurance premiums for coverage offered through programs available on a nondiscriminatory basis to substantially all of the Company’s employees (other than those covered by a collective bargaining agreement).

(4) 

Mr. Katzenberg and Mr. Coleman also serve or served as directors of the Company. Neither Mr. Katzenberg nor Mr. Coleman received any separate compensation for his role as a director in 2015.

 

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(5) 

Mr. Merchant and Mr. Aleman commenced employment with the Company in September 2014.

(6) 

Under the terms of his employment agreement, Mr. Merchant received cash awards totaling (a) $1,350,000 in 2014 consisting of a $350,000 signing bonus and a $1,000,000 payment on December 31, 2014 and (b) $1,300,000 on December 31, 2015 to compensate Mr. Merchant for amounts that he was required to forfeit upon leaving his prior employer.

(7) 

In July 2010, Mr. Chang received a time-vested cash award that vested in three equal installments of $75,000 in July 2012, 2013 and 2014. In October 2010, Mr. Chang received an additional time-vested cash award that vested in four equal installments of $10,000 in October 2011, 2012, 2013 and 2014.

(8) 

Under the terms of his employment agreement, Mr. Aleman received a cash award totaling $300,000 on January 2, 2015 to compensate Mr. Aleman for amounts that he was required to forfeit upon leaving his prior employer.

(9) 

Mr. Coleman served as our President and Chief Financial Officer until August 2014 and as our Vice Chairman from August 2014 to January 2015.

(10) 

In October 2010, Mr. Coleman received a time-vested cash award that vested in four equal installments in October 2011, 2012, 2013 and 2014.

 

In 2015, our named executive officers’ salaries and bonuses represented the following approximate percentages of their total compensation: Mr. Katzenberg—63%; Ms. Daly—56%; Mr. Merchant—73%; Mr. Chang—63%; Mr. Aleman—74%; Mr. Coleman—8% and Mr. Francis—74%.

 

The following table outlines the amounts included in “All Other Compensation” in the “Summary Compensation Table” for our named executive officers in 2015:

 

ALL OTHER COMPENSATION

 

Name

  Tax/Investment
Consulting(1)
    Legal
Services
    Commuting     Personal
Security
Services
    Other
Personal
Benefits
    Tax
Reimbursements
    Total All
Other
Compensation
 

Jeffrey Katzenberg

  $ —       $ —       $ —       $ 521,619 (2)    $ 5,300 (3)    $ —       $ 526,919   

Chief Executive Officer

             

Ann Daly

  $ 21,700      $ —       $ —       $ —       $ 5,300 (3)    $ —       $ 27,000   

President

             

Fazal Merchant

  $ 43,558      $ —       $ —       $ —       $ 5,300 (3)    $ —       $ 48,858   

Chief Financial Officer

             

Andrew Chang

  $ 21,700      $ 4,645 (4)    $ —       $ —       $ 5,300 (3)    $ 2,412 (5)    $ 34,057   

General Counsel

             

Edward Aleman

  $ 16,409      $ —       $ —       $ —       $ —       $ —       $ 16,409   

Former Chief Accounting Officer

             

Lewis W. Coleman

  $ 35,590     $ —       $ —       $ —       $ 2,385,300 (6)    $ —       $ 2,420,890   

Former Vice Chairman, President and Chief Financial Officer

             

Michael Francis

  $ 23,650      $ —       $ 158,558 (7)    $ —       $ 5,300 (3)    $ 99,426 (8)    $ 286,934   

Former Chief Global Brand Officer

             

 

(1) 

Represents payments made to a third party for tax and/or personal financial consulting services.

(2) 

Represents the aggregate incremental cost to the Company of providing personal security services to Mr. Katzenberg. Since the Company requires this protection under a comprehensive security program and it is not designed to provide a personal benefit (other than the intended security), the Company does not view these security arrangements as compensation to Mr. Katzenberg. However, in accordance with SEC guidance on this issue, the Company reports these security arrangements as perquisites.

(3) 

Represents 401(k) plan employer matching contributions.

(4) 

Represents payments made for legal services rendered in 2015 in connection with Mr. Chang’s employment agreement.

(5) 

Reflects a tax gross-up on income related to the items shown as “Legal Services.”

(6) 

Represents $5,300 for 401(k) plan employer matching contributions and $2,380,000 in cash severance payments.

(7) 

Represents the aggregate incremental cost to the Company of Mr. Francis’ airfare, housing and other expenses in connection with travel between the Company’s headquarters in Glendale, California and his residences in Los Angeles and Minnesota. In accordance with the definition of perquisites contained in Item 402 of Regulation S-K, we have included the aggregate incremental costs of these trips as a perquisite to Mr. Francis.

(8) 

Reflects a tax gross-up on income related to the items shown as “Commuting.”

 

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Grants of Plan-Based Awards

 

The following Grants of Plan-Based Awards table accompanies the “Summary Compensation Table and provides additional detail regarding of grants of equity awards (such as grants of restricted stock units) and under other compensation arrangements made during 2015 (Mr. Coleman did not receive any awards in 2015):

 

GRANTS OF PLAN-BASED AWARDS

 

Name and

Principal Position

  Approval
Date(1)
    Grant
Date(1)
    Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
    All Other
Stock

Awards:
Number of
Shares of
Stock or
Units(#)
    All Other
Option

Awards:
Number of
Securities
Underlying
Options(#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date Fair
Value of
Stock and
Option
Awards(2)
 
      Threshold
($)
    Target
($)
     Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Jeffrey Katzenberg(3)

    10/22/2015        11/10/2015      $ —        $ —         $ —          —          —         —          142,585        —        $ —        $ 3,374,987   

Chief Executive Officer

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      52,545        78,817        —          —        $ —        $ 1,124,988   
    2/18/2015        2/18/2015      $ 2,000,000      $ 4,000,000       $ 6,000,000        —          —          —          —          —        $ —        $ —     

Ann Daly(3)

    10/22/2015        11/10/2015      $ —        $ —         $ —          —          —          —          110,899        —        $ —        $ 2,624,979   

President

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      40,868        81,736        —          —        $ —        $ 874,984   
    2/18/2015        2/18/2015      $ 750,000      $ 1,500,000       $ 3,000,000        —          —          —          —          —        $ —        $ —     

Fazal Merchant(3)

    10/22/2015        11/10/2015      $ —        $ —         $ —          —          —          —          38,022        —        $ —        $ 899,981   

Chief Financial Officer

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      14,012        28,024        —          —        $ —        $ 299,997   
    2/18/2015        2/18/2015      $ 350,000      $ 700,000       $ 1,400,000        —          —          —          —          —        $ —        $ —     

Andrew Chang(3)

    10/22/2015        11/10/2015      $ —        $ —         $ —          —          —          —          23,764        —        $ —        $ 562,494   

General Counsel

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      3,853        7,706        —          —        $ —        $ 82,493   
   

 

2/18/2015

7/10/2015

  

(5) 

   

 

2/18/2015

7/10/2015

  

  

  $

$

110,000

24,596

  

  

  $

$

220,000

49,192

  

  

   $

$

440,000

98,384

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

  $

$

—  

—  

  

  

  $

 

—  

—  

  

  

Edward Aleman(3)

    10/22/2015        11/10/2015      $ —        $ —         $ —          —          —          —          9,505        —        $ —        $ 224,983   

Former Chief Accounting Officer

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      3,503        7,006        —          —        $ —        $ 74,999   
    2/18/2015        2/18/2015      $ 100,000      $ 200,000       $ 400,000        —          —          —          —          —        $ —        $ —     

Michael Francis(3)

    2/18/2015        2/27/2015      $ —        $ —         $ —          —   (4)      26,272        52,544        —          —        $ —        $ 562,484   

Former Chief Global Brand Officer

    2/18/2015        2/18/2015      $ 600,000      $ 1,200,000       $ 2,400,000        —          —          —          —          —        $ —        $ —     

 

(1) 

In accordance with our equity grant policy described in “Compensation Discussion and Analysis,” our current policy is generally to consider equity awards to the named executive officers at the time of regularly scheduled Compensation Committee meetings, with each grant occurring during the trading window established for Company insiders following the release of quarterly earnings.

(2) 

Amounts represent the grant-date fair value of equity awards made in 2015, as computed in accordance with ASC 718, and, in the case of performance-based stock awards, represent “target” level performance.

(3) 

Pursuant to each of these named executive officers’ employment agreements, subject to annual approval by the Compensation Committee, the named executive officers are entitled to receive an annual equity incentive award (in such form of equity-based compensation as the Compensation Committee may determine). For a further discussion of terms of these grants, see Compensation Discussion and Analysis.

(4) 

Relates to the grant of restricted stock units that are subject to certain performance criteria being met for the three-year period ending December 31, 2017 (as described more fully under “Compensation Discussion and Analysis—2015 Compensation Actions—Long-Term Incentive Compensation”). There is no threshold amount for these awards as each named executive officer is entitled to earn a percentage of the award (limited to whole units) for any increase in performance above the minimum amount of the relevant performance criteria.

(5) 

Pursuant to the new employment agreement with Mr. Chang, his target annual incentive award was increased from $220,000 to $325,000 effective July 14, 2015, as discussed in Compensation Discussion and Analysis— Annual Incentive Awards,” with corresponding changes to his threshold and maximum payments. The amounts in this row represent the pro-rata incremental increase in Mr. Chang’s 2015 annual incentive award over the threshold, target and maximum payments approved on February 18, 2015, as provided for in Mr. Chang’s new employment agreement.

 

All restricted stock units shown in the table were granted under the First Amended Plan. The restricted stock units granted in February 2015 are subject to the achievement of certain performance hurdles for the three-year period ending December 31, 2017. See Compensation Discussion and Analysis—2015 Compensation Actions—Long-Term Incentive Compensation. The methodology used by the Compensation Committee in making the awards to the named executive officers is discussed in the Compensation Discussion and Analysis—Analysis of Executive Compensation Elements. The vesting of awards may, in certain instances, continue following termination of employment or be accelerated upon certain events. See Compensation Discussion and Analysis and —Executive Employment Agreements for a discussion of the principal terms of our named executive officers’ employment agreements.

 

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For a discussion of additional information necessary to understand the Equity Incentive Plan Awards shown in the above table (including a discussion of the performance criteria established and the actual payouts, if applicable, under such awards), please see the section entitled Compensation Discussion and Analysis—2015 Compensation Actions—Long-Term Incentive Compensation.”

 

All Non-Equity Incentive Plan Awards shown in the table were granted under the Annual Incentive Plan. For a discussion of additional information necessary to understand such awards (including a discussion of the performance criteria established and actual payouts, if applicable, under such awards), please see the section entitled Compensation Discussion and Analysis—2015 Compensation Actions—Annual Incentive Awards.

 

We have entered into an employment agreement with each of our named executive officers. For a further discussion of the employment agreements, please see Compensation Discussion and Analysis—How We Determine Executive Compensation—Use of Employment Agreements and Competitive Assessments in Compensation Determinations and —Executive Employment Agreements.”

 

Outstanding Equity Awards at Fiscal Year-End

 

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

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock
That
Have
Not
Vested (#)
    Market
Value of
Shares of
Units of
Stock
That
Have Not
Vested
($)
    Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
    Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)
 

Jeffrey Katzenberg

    800,000        —          —        $ 24.28        5/1/2019        182,254 (1)    $ 4,696,686        266,291 (2)    $ 6,862,319   

Chief Executive Officer

    269,796        —          —          35.30        10/29/2020           

Ann Daly

    156,250        —          —        $ 28.80        11/28/2016        141,753 (3)    $ 3,652,975        220,737 (4)    $ 5,688,392   

President

    163,010        —          —          31.37        11/2/2017           

Fazal Merchant

    —          —          —        $ —          —          38,022 (5)    $ 979,827        64,187 (6)    $ 1,654,099   

Chief Financial Officer

                 

Andrew Chang

    1,400        —          —        $ 28.80        11/28/2016        35,095 (7)    $ 904,398        9,582 (8)    $ 246,928   

General Counsel

    1,375        —          —          31.37        11/2/2017           
    1,516        —          —          28.10        10/31/2018           
    3,551        —          —          32.00        10/30/2019           
    6,744        —          —          35.30        10/29/2020           

Edward Aleman

    —          —          —        $ —          —          39,280 (9)    $ 1,012,246        5,838 (10)    $ 150,445   

Former Chief Accounting Officer

                 

Lewis W. Coleman

    55,332        —          —        $ 24.85        3/20/2016        —        $ —          45,372 (11)    $ 1,169,236   

Former Vice Chairman,

President and

Chief Financial Officer

    169,270        —          —          28.80        11/28/2016           
    176,594        —          —          31.37        11/2/2017           
    197,144        —          —          28.10        10/31/2018           
    173,117        —          —          32.00        10/30/2019           
    73,069        —          —          35.30        10/29/2020           

Michael Francis

    —          —          —        $ —          —          —        $ —          19,141 (12)    $ 493,264   

Former Chief Global Brand Officer

                 

 

(1) 

Consists of (i) 39,669 restricted stock units that vest on November 6, 2016 and (ii) 142,585 restricted stock units that vest with respect to 35,646 shares on November 10, 2016, 2017 and 2018, respectively, and 35,647 shares on November 10, 2019.

(2) 

Consists of (i) performance compensation awards in the form of 26,445 and 16,656 restricted stock units that vest on December 31, 2015 and 2016, respectively, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date (performance criteria were not met for the three-year period ending December 31, 2015), (ii) 153,130 restricted stock units that vest ratably at a rate of 25% on February 17, 2016 (the date the

 

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Compensation Committee certified the Company’s financial results for the year ending December 31, 2015), November 3, 2016, November 3, 2017 and November 3, 2018, subject to the Company achieving positive adjusted EBIT for the year ending December 31, 2015 (which was met), and (iii) 70,060 restricted stock units that vest on December 31, 2017, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date.

(3) 

Consists of (i) 30,854 restricted stock units that vest on November 6, 2016 and (ii) 110,899 restricted stock units that vest with respect to 27,724 shares on November 10, 2016 and 27,725 shares on November 10, 2017, 2018 and 2019, respectively.

(4) 

Consists of (i) performance compensation awards in the form of 20,568 and 12,955 restricted stock units that vest on December 31, 2015 and 2016, respectively, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date (performance criteria were not met for the three-year period ending December 31, 2015), (ii) 119,101 restricted stock units that vest ratably at a rate of 25% on February 17, 2016 (the date the Compensation Committee certified the Company’s financial results for the year ending December 31, 2015), November 3, 2016, November 3, 2017 and November 3, 2018, subject to the Company achieving positive adjusted EBIT for the year ending December 31, 2015 (which was met), and (iii) 68,113 restricted stock units that vest on December 31, 2017, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date .

(5) 

Consists of 38,022 restricted stock units that vest with respect to 9,505 shares on each of November 10, 2016 and 2018, and 9,506 shares on each of November 10, 2017 and 2019.

(6) 

Consists of (i) 40,834 restricted stock units that vest ratably at a rate of 25% on February 17, 2016 (the date the Compensation Committee certified the Company’s financial results for the year ending December 31, 2015), November 3, 2016, November 3, 2017 and November 3, 2018, subject to the Company achieving positive adjusted EBIT for the year ending December 31, 2015 (which was met), and (ii) 23,353 restricted stock units that vest on December 31, 2017, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date.

(7) 

Consists of (i) 2,909 restricted stock units that vest on November 6, 2016, (ii) 8,422 restricted stock units that vest with respect to 2,807 shares on November 3, 2016 and 2017, respectively, and 2,808 shares on November 3, 2018 and (iii) 23,764 restricted stock units that vest with respect to 5,941 shares on November 10, 2016, 2017, 2018 and 2019, respectively.

(8) 

Consists of (i) performance compensation awards in the form of 1,939 and 1,221 restricted stock units that vest on December 31, 2015 and 2016, respectively, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date (performance criteria were not met for the three-year period ending December 31, 2015) and (ii) 6,422 restricted stock units that vest on December 31, 2017, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date.

(9) 

Consists of (i) 29,775 restricted stock units that vest with respect to 9,925 shares on each of November 3, 2016, 2017 and 2018, and (ii) 9,505 restricted stock units that vest with respect to 2,376 shares on each of November 10, 2016, 2017 and 2018 and 2,377 shares on November 10, 2019.

(10) 

Consists of 5,838 restricted stock units that vest on December 31, 2017, subject to the satisfaction of certain performance criteria measured over the three-year period ending on such date.

(11) 

Consists of 45,372 shares of restricted stock that vested on February 17, 2016 (the date the Compensation Committee certified the Company’s financial results for the year ending December 31, 2015), subject to the Company achieving positive adjusted EBIT for the year ending December 31, 2015 (which was met).

(12) 

Consists of 19,141 restricted stock units that vested on February 17, 2016 (the date the Compensation Committee certified the Company’s financial results for the year ending December 31, 2015), subject to the Company achieving positive adjusted EBIT for the year ending December 31, 2015 (which was met).

 

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Options Exercised and Stock Vested

 

The following table sets forth the options which were exercised and the restricted stock units and shares of restricted stock that vested for the named executive officers during 2015:

 

OPTION EXERCISES AND STOCK VESTED

 

      Option Awards      Stock Awards  

Name

   Number of Shares
Acquired on
Exercise (#)
     Value Realized on
Exercise ($)
     Number of Shares
Acquired on
Vesting (#)
     Value Realized
on Vesting ($)
 

Jeffrey Katzenberg

Chief Executive Officer

     —        $ —          89,370       $ 1,963,570 (1) 

Ann Daly

President

     —        $ —          43,279       $ 970,338 (2) 

Fazal Merchant

Chief Financial Officer

     —        $ —          —        $ —    

Andrew Chang

General Counsel

     —        $ —          6,959       $ 150,422 (3) 

Edward Aleman

Former Chief Accounting Officer

     —        $ —          9,924       $ 202,995 (4) 

Lewis W. Coleman

Former Vice Chairman, President and Chief Financial Officer

     —        $ —          90,811       $ 1,694,079 (5) 

Michael Francis

Former Chief Global Brand Officer

     —        $ —          25,111       $ 606,180 (6) 

 

(1) 

Amount based on: (i) 49,702 restricted stock units that vested on October 28, 2015 at a price of $21.230 per share and (ii) 39,668 restricted stock units that vested on November 6, 2015 at a price of $22.900 per share.

(2) 

Amount based on: (i) 12,426 restricted stock units that vested on October 28, 2015 at a price of $21.230 per share and (ii) 30,853 restricted stock units that vested on November 6, 2015 at a price of $22.900 per share.

(3) 

Amount based on: (i) 1,243 restricted stock units that vested on October 28, 2015 at a price of $21.230 per share, (ii) 2,807 restricted stock units that vested on November 3, 2015 at a price of $20.455 per share and (iii) 2,909 restricted stock units that vested on November 6, 2015 at a price of $22.900 per share.

(4) 

Amount based on 9,924 restricted stock units that vested on November 3, 2015 at a price of $20.455 per share.

(5) 

Amount based on 90,811 restricted stock that vested on January 30, 2015 at a price of $18.655 per share. Mr. Coleman retired from the Company on January 30, 2015.

(6) 

Amount based on 25,111 restricted stock units that vested on December 7, 2015 at a price of $24.140 per share.

 

In addition to the restricted stock and restricted stock units that vested during 2015 as disclosed in the above table, the following equity-based awards vested after December 31, 2015 but before the date of this Proxy Statement:

 

   

Mr. Katzenberg: 38,282 shares of restricted stock units subject to performance-based vesting criteria vested on February 17, 2016.

 

   

Ms. Daly: 29,775 shares of restricted stock units subject to performance-based vesting criteria vested on February 17, 2016.

 

   

Mr. Merchant: 10,208 shares of restricted stock units subject to performance-based criteria vesting vested on February 17, 2016.

 

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Nonqualified Deferred Compensation

 

The following table sets forth the nonqualified deferred compensation plan activity for each named executive officer during the year ended December 31, 2015:

 

NONQUALIFIED DEFERRED COMPENSATION TABLE

 

Name

  Executive
Contributions in
Last Fiscal Year

($)
    Registrant
Contributions in
Last Fiscal Year

($)
    Aggregate Earnings
(Loss) in Last
Fiscal Year

($)
    Aggregate
Withdrawals/
Distributions

($)
    Aggregate Balance
at Last Fiscal
Year-End

($)
 

Jeffrey Katzenberg

Chief Executive Officer

  $ —       $             —       $ —       $             —       $ —    

Ann Daly

President

  $ —       $             —       $ —       $ —       $ —    

Fazal Merchant

Chief Financial Officer

  $ —       $             —       $ —       $ —       $ —    

Andrew Chang

General Counsel

  $ 73,546 (1)    $             —       $ 13,814 (2)    $ —       $ 666,190 (3) 

Edward Aleman

Former Chief Accounting Officer

  $ —       $             —       $ —       $ —       $ —    

Lewis W. Coleman

Former President and Chief Financial Officer

  $ —       $             —       $ —       $ —       $ —    

Michael Francis

Former Chief Global Brand Officer

  $ —       $             —       $ —       $ —       $ —     

 

(1) 

This amount is included in the “Summary Compensation Table in the “Salary” column for 2015.

(2) 

This amount is not included in the “Summary Compensation” Table because plan earnings were not preferential or above-market.

(3) 

This amount includes executive contributions of $110,000 and $53,304 for the years ended December 31, 2014 and 2013, respectively.

 

The Company’s nonqualified deferred compensation plan allows highly compensated employees, including the named executive officers, to defer up to 85% of their salary and 100% of their annual cash incentive award. The plan is an unfunded plan for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. Deferred amounts are a general unsecured obligation of the Company and are subject to the Company’s on-going financial solvency. The Company has established a grantor trust (a so-called “rabbi” trust) for the purpose of accumulating funds to assist the Company in satisfying its obligations under the plan. The Company does not provide a guaranteed rate of return on plan balances. Each participant’s account under the plan is credited with earnings, at periodic intervals, at a rate equal to the actual rate of return for the relevant period of the investment fund or funds or index or indices selected by the participant from a range of investment vehicles offered under the plan. The investment vehicles currently offered are generally the same as those offered under the Company’s 401(k) plan. Other than credited earnings on employee deferrals, the Company does not currently make any contributions to the plan. Participants are generally allowed to reallocate plan account balances in the same manner as provided in the Company’s 401(k) plan. The Company provides participants with the flexibility to begin receiving the distributions of their plan balances upon the occurrence of separation from service or a future date at least one year from the start of a plan year to which a deferral election pertains (as well as upon the earliest to occur of (i) one or both of such events and (ii) a change in control of the Company). Distributions can be made at the participant’s election in a lump sum or in a series of installments. Participants may make a hardship withdrawal upon specific circumstances.

 

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Estimated Executive Benefits and Payments Upon Termination or Change in Control

 

The following table reflects the amounts of compensation that would be due to each of our named executive officers pursuant to their respective employment agreements upon termination for good reason, involuntary termination without cause, termination for cause, a change in control of the Company, termination following a change in control of the Company and in the event of incapacity, disability or death of the executive, as if each of such events had occurred on December 31, 2015. For a discussion of the terms of each executive’s employment agreement as in effect on December 31, 2015, please see —Executive Employment Agreements.” The amounts shown below are estimates of the payments that each executive officer shown would receive in certain instances. The actual amounts payable will only be determined upon the actual occurrence of any such event. Amounts paid to each of Mr. Coleman and Mr. Francis in connection with his departure from the Company in 2015 are discussed following this table.

 

Event

   Jeffrey
Katzenberg
     Ann
Daly
     Fazal
Merchant
     Andrew
Chang
     Edward
Aleman
 

Termination for Good Reason / Involuntary Termination without Cause:

              

Cash severance(1)

   $ 9,976,389       $ 4,210,009       $ 2,100,000       $ 3,100,067       $ 1,100,000   

Acceleration of equity awards(2)

     9,996,922         7,775,376         2,393,208         1,003,690         1,102,518   

Continuation of medical / welfare benefits and perquisites(3)

     51,911         73,662         133,227         169,849         78,442   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,025,222       $ 12,059,047       $ 4,626,435       $ 4,273,606       $ 2,280,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Involuntary Termination for Cause:

              

Cash severance(1)

   $ —        $ —        $ —        $ —        $ —    

Acceleration of equity awards(2)

     —          —          —          —          —    

Continuation of medical / welfare benefits and perquisites(3)

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Incapacity / Disability:

              

Cash severance(1)

   $ 2,267,361       $ 1,360,417       $ 1,400,000       $ 700,000       $ 725,000   

Acceleration of equity awards(2)

     4,666,219         3,629,284         1,034,104         379,879         390,988   

Continuation of medical / welfare benefits and perquisites(3)

     34,300         40,610         66,614         47,995         41,836   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,967,880       $ 5,030,311       $ 2,500,718       $ 1,127,874       $ 1,157,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Death:

              

Cash severance(1)

   $ 2,500,000       $ 1,500,000       $ 1,400,000       $ 700,000       $ 750,000   

Acceleration of equity awards(2)

     4,666,219         3,629,284         1,034,104         379,879         390,988   

Continuation of medical / welfare benefits and perquisites(3)

     18,910         —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,185,129       $ 5,129,284       $ 2,434,104       $ 1,079,879       $ 1,140,988   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Change in Control and No Termination:

              

Cash severance(1)

   $ —        $ —        $ —        $ —        $ —    

Acceleration of equity awards(2)

     —          —          —          —          —    

Continuation of medical / welfare benefits and perquisites(3)

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Change in Control and Involuntary Termination or Termination for Good Reason:

              

Cash severance(1)

   $ 10,965,667       $ 4,641,971       $ 1,400,000       $ 3,100,067       $ 635,331   

Acceleration of equity awards(2)

     10,855,389         8,443,077         2,732,119         1,066,620         1,362,246   

Continuation of medical / welfare benefits and

perquisites(3) (4)

     37,820         81,220         133,227         169,849         83,671   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,858,876       $ 13,166,268       $ 4,265,346       $ 4,336,536       $ 2,081,248   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Amounts shown do not include any amounts that might be due at the time of payment for accrued and unpaid salary, bonuses, vacation or interest on payments (if any) delayed as a result of Section 409A of the Code.

 

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(2) 

Calculated using the fair market value of unvested restricted stock units and the in-the-money value of unvested options and SARs as of December 31, 2015. For purposes of the performance compensation awards granted in 2013, 2014 and 2015, the awards are assumed to be earned at 0%, 0%, and 100% of target, respectively, with the associated value based upon the Company’s stock price as of December 31, 2015 of $25.77 per share.

(3) 

For the named executive officers in the table, the amounts shown consist of, for the period specified in each executive’s employment agreement, (i) the continued provision of the tax and investment consulting services listed in the “All Other Compensation” table at 2015 levels and (ii) the continued provision of certain health and welfare benefits. With respect to continued health and welfare benefits, the amounts shown (i) have been calculated based upon the Company’s current actual costs of providing the benefits and (ii) have not been discounted for the time value of money. The current annual cost of providing the continued benefits to each of our eligible named executive officers is as follows: Jeffrey Katzenberg—$18,910; Ann Daly—$40,610; Fazal Merchant—$66,614; John Chang—$47,995; and Edward Aleman—$41,836 .

(4) 

As disclosed below in the section entitled “—Executive Employment Agreements,” in the event that, within one year following a change in control, a named executive officer is involuntarily terminated without cause or he or she terminates for good reason (or, in the case of Ms. Daly, Mr. Merchant, Mr. Chang and Mr. Aleman, if his or her employment agreement expires by its terms), the named executive officer will be entitled to receive his or her cash severance payments and benefits for a period equal to the greater of the remaining term of his or her employment agreement and two years.

 

Since each named executive officer’s employment agreement generally provides for the continuation of salary and benefits until the end of the original employment period, payments for cash severance and continued benefits and perquisites will generally be made ratably over the remaining period of an executive’s employment agreement (subject to any delays required pursuant to Section 409A of the Code). Depending upon the termination event, equity and cash-based awards will be accelerated either upon termination or upon the completion of the performance period provided for in the original grant.

 

None of the named executive officers is entitled to excise tax gross-up payments; instead, his or her employment agreement provides for a “best net” approach, whereby the payment is limited to the threshold amount under Section 280G of the Code if the net benefit to the named executive officer would otherwise be greater than receiving the full value and paying the excise tax. The estimated termination payments and benefits presented in the table above do not reflect any reductions that may be more favorable to the named executive officer on a net after-tax basis.

 

Each of Mr. Katzenberg’s and Ms. Daly’s employment agreements, as in effect on December 31, 2015, provides for some form of additional vesting of previously granted equity-based and cash-based compensation awards under certain conditions following expiration of the original term of the employment agreement. Under each of their employment agreements, the officer will be entitled to all equity and cash-based compensation that has vested and, if the officer retires from the Company, the officer’s equity and cash-based compensation that has not vested will become vested, provided that any such compensation will continue to be subject to the achievement of any applicable performance goals. All options and other similar awards will remain exercisable for the remaining original term of the grant. The officer will be considered to have retired from the Company if his or her employment with the Company terminates within 30 days following the end of the term of his or her employment agreement and, as of such date, he or she is 55 years old and the sum of his or her age and years of service with the Company is at least 70. As of December 31, 2015, each of Mr. Katzenberg and Ms. Daly satisfied these requirements. If the officer does not retire following the end of the term of his or her employment agreement, his or her outstanding equity and cash-based compensation awards will continue to vest during his or her continued employment in accordance with their terms and any new employment agreement between the officer and the Company. All options, stock appreciation rights and other similar awards will remain exercisable for the remaining original term of the grant. For each of our executive officers mentioned in this paragraph, if his or her employment agreement had expired as of December 31, 2015 and he or she had retired from the Company on such date, the provisions described in this paragraph would have resulted in the following benefits (based, among other things, on the closing stock price as of December 31, 2015):

 

  

 

J. Katzenberg

    A. Daly    

 

    $14,337,581      $ 9,278,502     

 

Mr. Coleman’s employment with the Company terminated on January 30, 2015. In accordance with the terms of his employment agreement, he is entitled to receive, or have the Company pay on his behalf, the following items through the remaining original term of his employment agreement: (i) continuation of salary—

 

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$3,833,333; (ii) acceleration of certain unvested equity awards (based on the closing stock price as of January 30, 2015)—$1,695,441; (iii) tax and investment consulting—$65,563; (iv) 401(k) plan matching contributions—$2,000; and (v) continuation of health and welfare benefits—$35,359. Pursuant to the terms of Mr. Coleman’s employment agreement, these amounts are subject to reduction for amounts that Mr. Coleman receives from any future employment (subject to certain specified exceptions). Mr. Coleman was also previously granted a restricted stock award that remained subject to the Company achieving positive EBIT for the year ended December 31, 2015, which was met. Mr. Coleman vested in 45,372 shares of Class A Common Stock on February 17, 2016 (the date on which the Compensation Committee certified the Company’s financial results for the year ended December 31, 2015) having a value of $998,637 (based on the closing stock price as of February 17, 2016).

 

Mr. Francis’s employment with the Company terminated on December 8, 2015 in accordance with the terms of his employment agreement. He did not receive any severance or other payments in connection with the termination of his employment.

 

Executive Employment Agreements

 

Employment Agreement with Jeffrey Katzenberg

 

On October 24, 2012, we entered into a new employment agreement with Mr. Katzenberg, which superseded and replaced Mr. Katzenberg’s prior employment agreement, and provides for Mr. Katzenberg’s continued employment with the Company until October 23, 2017. Under Mr. Katzenberg’s employment agreement, his professional services are exclusive to the Company. Mr. Katzenberg’s compensation is described in the “Summary Compensation Table.” In addition to such compensation and customary benefits, Mr. Katzenberg is entitled to reimbursement for business expenses, including those related to private airplane usage in the performance of his duties and security personnel services.

 

Under Mr. Katzenberg’s employment agreement, following the end of the term of his employment agreement (i.e., October 23, 2017) (provided his employment has not already terminated), in the event Mr. Katzenberg retires, he will be entitled to accelerated vesting of all equity-based awards held by him that are subject to time-based vesting criteria. In the event of retirement, any performance-based equity awards will continue to be subject to the achievement of applicable performance goals, and all options and other similar awards will remain exercisable for the remaining original term of the grant. Mr. Katzenberg will be considered to have retired from the Company if his employment with the Company terminates within 30 days following the end of the term of his employment agreement. See —Estimated Executive Benefits and Payments upon Termination or Change in Control. In the event that Mr. Katzenberg does not retire at that time and instead remains employed by the Company, his outstanding equity-based compensation awards will continue to vest during his continued employment in accordance with their terms.

 

Mr. Katzenberg’s employment agreement provides that we may terminate Mr. Katzenberg’s employment with or without cause (as defined in the agreement), and Mr. Katzenberg may terminate his employment for good reason (as defined in the agreement), subject to the Company’s 90-day cure period. For purposes of Mr. Katzenberg’s employment agreement, “cause” is generally defined as:

 

   

conviction of a felony, crimes involving moral turpitude, embezzlement or misappropriation of corporate assets; or

 

   

material breach of the exclusivity, confidentiality and service provisions of the agreement.

 

For purposes of Mr. Katzenberg’s employment agreement, “good reason” is generally defined as:

 

   

material breach of the agreement by the Company; or

 

   

material reduction of his title or duties.

 

If we terminate Mr. Katzenberg’s employment other than for cause, medical disability or death or if Mr. Katzenberg terminates his employment for good reason, we will provide Mr. Katzenberg his base salary and

 

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benefits until the expiration of the original term of the employment agreement and, to the extent any cash bonuses have been paid, he will be entitled to an annual cash amount equal to the average annual cash bonuses that have been previously paid until the expiration of the employment agreement term. If, within one year following a change in control of the Company, he is involuntarily terminated or terminated for good reason (or his employment agreement expires by its terms), he will receive cash severance payments for a period equal to the greater of the remaining term of the employment agreement and two years. In addition, all equity-based awards that are subject to time-based vesting will accelerate vesting and such awards will remain exercisable for the remainder of the term of the grant. In the event of termination, all performance-based equity awards will continue to be subject to the achievement of applicable performance goals. For purposes of Mr. Katzenberg’s employment agreement, “medical disability” is generally defined as Mr. Katzenberg’s inability to perform a material portion of his duties for 90 consecutive days as a result of his mental or physical incapacity.

 

If Mr. Katzenberg’s employment is terminated by us for cause, we will have no further obligations to Mr. Katzenberg under the employment agreement, other than with respect to obligations accrued or vested prior to the date of termination.

 

If Mr. Katzenberg’s employment terminates during the term of the employment agreement as a result of his death or medical disability, Mr. Katzenberg (or his estate or beneficiary) will be entitled to retain all grants of equity-based compensation (whether or not vested) made to him prior to the date of his termination of employment but will not be entitled to receive any grants of equity-based compensation after termination. After termination of employment, subject to the attainment of applicable performance goals, the exercisability or settlement of Mr. Katzenberg’s awards that are subject to performance-based vesting conditions will be determined after the end of the performance period specified in each grant as if Mr. Katzenberg had continued to remain employed throughout the performance period. In the event that performance goals have been attained, Mr. Katzenberg (or his estate or beneficiary) will be entitled to receive or exercise a percentage of each award determined based on the length of time he was employed prior to termination, and he will receive credit as if he worked for an additional 50% of the time remaining on the employment agreement term (except, in the case of performance-based awards, only to the extent that applicable performance goals have been attained). The exercisable portion of any award will remain exercisable for the remaining term of the grant. In the case of a termination for medical disability, Mr. Katzenberg will be entitled to receive 50% of his base salary and all medical, dental, life and other benefits for the remainder of the term of the employment agreement.

 

Mr. Katzenberg’s employment agreement provides that his outstanding equity-based compensation will not accelerate vesting in connection with a change in control unless either (i) the successor company refuses to assume his awards or substitute equivalent awards or (ii) within the one-year period following the change in control, Mr. Katzenberg’s employment is involuntarily terminated by the successor company without cause or Mr. Katzenberg voluntarily terminates employment for good reason. In the event Mr. Katzenberg’s equity-based compensation accelerates in connection with a change in control of the Company, any grants having performance-based criteria will vest on the basis that any target goals rather than premium goals have been achieved. Mr. Katzenberg is not entitled to a gross-up for any excise tax imposed on “excess parachute payments.” Instead, Mr. Katzenberg will either be required to pay the excise tax or have his payments reduced if it would be more favorable to him on an after-tax basis.

 

In our executives’ employment agreements, “change in control” is generally defined as:

 

   

during any period of 14 calendar months, our directors on the first day of such period (the “Incumbent Directors”) no longer constitute a majority of our directors (provided that any director elected upon the recommendation of a majority of the Incumbent Directors will be considered an Incumbent Director);

 

   

the completion of a merger, sale of substantially all of the assets of or similar transaction involving the Company (subject to specified exceptions);

 

   

our stockholders approve a plan of complete liquidation or dissolution; or

 

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any person or entity becomes the beneficial owner of 40% of the combined voting power of the Company but only if such combined voting power is greater than the voting securities then owned by Jeffrey Katzenberg and David Geffen.

 

We agreed to indemnify Mr. Katzenberg to the fullest extent permitted by law against any claims or losses arising in connection with Mr. Katzenberg’s service to the Company or any affiliate.

 

Mr. Katzenberg agreed to non-solicitation (continuing for one year following Mr. Katzenberg’s employment) and confidentiality provisions in the agreement.

 

Employment Agreements with Other Named Executive Officers

 

We have also entered into an employment agreement with each of our other named executive officers. The principal terms of the employment agreements with Ms. Daly, Mr. Merchant and Mr. Chang, as in effect on December 31, 2015, are described below.

 

The employment agreements with Ms. Daly, Mr. Merchant and Mr. Chang terminate on October 23, 2017, December 31, 2017 (December 31, 2019 if the Company exercises its option to extend the agreement for two years), and July 14, 2019, respectively. The employment agreements with Mr. Aleman and Mr. Coleman would have terminated by their terms on November 15, 2017 and December 31, 2016, respectively; instead, however, their agreements terminated in connection with Messrs. Aleman’s and Coleman’s departures from the Company in March 2016 and January 2015, respectively. Mr. Francis’ employment agreement terminated in December 2015 in accordance with its terms. In addition to the compensation described in the “Summary Compensation Table,” executive officers are entitled to business expense reimbursement and to participate in the Company’s benefit plans.

 

The employment agreements provide that we may terminate the executive officer’s employment with or without cause and the executive officer may terminate his or her employment for good reason, subject to the Company’s 90-day cure period. For purposes of these executives’ employment agreements, “good reason” is generally defined as:

 

   

material breach of the agreement by the Company;

 

   

diminution in title or reporting obligation;

 

   

material diminution in duties; or

 

   

the Company requiring that the executive’s principal place of business be anywhere other than the Los Angeles area.

 

If we terminate employment other than for cause, incapacity or death, or the executive officer terminates employment for good reason, we will generally continue his or her base salary and benefits until the expiration of the original term of the employment agreement and, to the extent any cash bonuses have been paid, the executive officer will be entitled to an annual cash amount equal to the average annual cash bonuses that have been previously paid until the expiration of the employment agreement term. If, within one year following a change in control of the Company, the executive officer is involuntarily terminated, terminates for good reason or if his or her employment agreement expires by its terms, the executive officer will receive cash severance payments for a period equal to the greater of the remaining term of his or her employment agreement and two years. In addition, all time-vested equity-based compensation held by the executive officer will accelerate vesting and remain exercisable for the remainder of the term of the grant. With respect to equity grants having performance-based vesting criteria, depending on the date of grant the awards will either accelerate vesting on the basis that any target goals have been achieved or the awards will remain outstanding and will vest at the end of the performance period based upon the actual achievement of the applicable performance criteria.

 

If the executive officer’s employment is terminated for cause, the executive officer will be entitled to payment for any unpaid base salary and any additional non-contingent cash compensation earned prior to termination (including any equity-based compensation that has vested).

 

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If the executive officer’s employment is terminated during the term of the employment agreement as a result of incapacity, the executive officer will be entitled to receive (i) 50% of the executive officer’s base salary for the shorter of the remainder of the employment agreement term or two years, (ii) any additional compensation (including equity-based compensation) that is vested on the date of termination, (iii) any other accrued benefits and (iv) continued medical, dental, life insurance and certain other benefits for 12 months following termination of employment. In addition, the executive officer will be entitled to retain all grants of equity-based compensation (whether or not vested) made to the executive officer prior to the date of the termination of employment. After termination of employment, the exercisability or settlement of equity awards subject to the grants will be determined promptly (or, in the case of grants having performance-based vesting criteria, after the end of the performance period specified in each grant as if the executive had continued to remain employed throughout the performance period). The executive officer will be entitled to receive or exercise a percentage of each award determined based on the length of time he or she was employed prior to termination (in the case of awards having performance-based vesting criteria, subject to attainment of the applicable performance goals), and the executive officer will receive credit for the shorter of (A) an additional year of service or (B) 50% of the remaining term of the agreement. The exercisable portion of any award will remain exercisable for the remaining term of the grant.

 

If the executive officer’s employment terminates during the term of the employment agreement as a result of death, the executive officer’s estate or beneficiary will generally be entitled to receive 12 months of additional base salary and equity-based compensation determined as in the case of incapacity above.

 

Following the end of the term of Ms. Daly’s employment agreement (provided her employment has not already terminated), Ms. Daly’s agreement provides that she will be entitled to all equity-based compensation that has vested and, if she retires from the Company, her equity-based compensation that has not vested will become vested, provided that any such compensation will continue to be subject to the achievement of any applicable performance goals. All options and other similar awards will remain exercisable for the remaining original term of the grant. Ms. Daly will be considered to have retired from the Company if her employment with the Company terminates within 30 days following the end of the term of the employment agreement and, as of such date, she is 55 years old and the sum of her age and years of service with the Company is at least 70. Ms. Daly has satisfied this requirement. If Ms. Daly does not retire following the end of the term of her current employment agreement, her outstanding equity-based compensation awards will continue to vest during her continued employment in accordance with their terms and any new employment agreement between Ms. Daly and the Company. See “—Estimated Executive Benefits and Payments Upon Termination or Change in Control.” Mr. Coleman’s employment agreement contained provisions similar to those described in this paragraph.

 

Pursuant to the executive officers’ employment agreements, outstanding equity-based compensation will not accelerate vesting in connection with a change in control unless either (i) the successor company refuses to assume the executive’s awards or substitute equivalent awards or (ii) within the one-year period following the change in control, the executive’s employment is involuntarily terminated by the successor company without cause or the executive voluntarily terminates employment for good reason. In the event such equity-based compensation accelerates in connection with a change in control of the Company, any grants having performance-based vesting criteria will vest on the basis that any target goals rather than premium goals have been achieved.

 

We have agreed to indemnify each executive officer to the fullest extent permitted by law, against any claims or losses arising in connection with such executive officer’s service to the Company or any affiliate.

 

In addition, Mr. Merchant, Mr. Chang, Mr. Aleman, Mr. Francis and Mr. Coleman have each agreed to non-solicitation provisions in their respective agreements for one year following employment and Ms. Daly has agreed to non-solicitation provisions in her agreement for two years following employment and to non-competition provisions for one year following employment. Each executive officer has agreed to confidentiality provisions in his or her agreement.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Related Party Transaction Policy

 

Our Board of Directors has adopted a written related party transaction policy, which is administered by the Audit Committee. This policy applies to any transaction or series of transactions in which the Company is a participant, the amount involved exceeds or is expected to exceed $100,000 in any calendar year and any related person has a direct or indirect interest. For purposes of the policy, “related persons” consist of executive officers or directors, any stockholder beneficially owning more than 5% of the Company’s common stock or immediate family members of any such persons. Under the policy, the Audit Committee will review all applicable related party transactions for approval, ratification or other action. In reviewing any related party transaction, the Audit Committee will take into account any factors that it deems appropriate, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. The Board of Directors or Audit Committee may refer the evaluation of any related party transaction to the Company’s independent directors (or a special committee comprised of independent directors). No director will participate in any discussion or approval of any transaction in which the director is an interested party. With the exception of the transactions described under “—Vessel Content and Referral Agreements,” “—Use of Private Aircraft,” “—License Agreement with Entities Controlled by Steven Spielberg” and “—Services from Entities Controlled by Steven Spielberg,” the related-party transactions discussed below were entered into before adoption of such written policy.

 

Vessel Content and Referral Agreements

 

Vessel, a start-up subscription Internet video service of which Jason Kilar is the chief executive officer and a significant stockholder, has entered into (and is expected to continue to enter into) content and referral agreements with clients of AwesomenessTV (“ATV”), one of the Company’s majority owned subsidiaries. The agreements in effect as of the date of this Proxy Statement provide for minimum payments totaling approximately $2.8 million during the terms of each such agreement to AwesomenessTV clients, with additional payments depending on applicable advertising and subscription revenues. An aggregate of $651,135 was paid by Vessel in 2015 with respect to these agreements and an aggregate of $251,217 has been paid in 2016 as of the date of this Proxy Statement. Although AwesomenessTV is not a party to these agreements, it will receive a percentage of the amounts paid to its clients under the terms of its arrangements with its individual clients. The agreements between Vessel and ATV have been ratified by the Audit Committee.

 

Use of Private Aircraft

 

From time to time, the Company uses private aircraft which are owned partially or completely by certain of our executive officers and significant stockholders. We make payments to these individuals (or entities controlled by them) for the cost of using private aircraft while traveling on Company business.

 

In October 2008, the Company entered into a time sharing agreement for use of an aircraft that is owned indirectly by Steven Spielberg. Under this agreement, if one of the Company’s executives uses the aircraft for Company business, the Company pays an hourly rate equal to two times the fuel cost, plus certain enumerated expenses such as landing fees, crew travel costs and catering. Beginning in 2010, the aircraft is permitted to operate as a standard charter service. As a result, the Company’s use of this aircraft is now generally pursuant to a customary charter arrangement, under which the Company pays an hourly rate as well as certain additional charges, such as crew expenses, catering and landing fees. The Company paid $91,551 to use this aircraft for flights occurring during 2015.

 

License Agreement with Entities Controlled by Steven Spielberg

 

In August 2009, the Company entered into a License Agreement (the “Prior Spielberg Agreement”) with a number of entities owned and controlled by Steven Spielberg. Under the Prior Spielberg Agreement, the

 

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Company granted the entities the exclusive right to use the DreamWorks name and trademark in connection with live-action films and television intended for adult audiences and a nonexclusive right for live-action films intended for family audiences. The Prior Spielberg Agreement originally had a term of the earlier of six years or 30 films produced by the entities, although the Company is permitted to terminate the agreement at any time after four years. As part of the Prior Spielberg Agreement, Mr. Spielberg has agreed that any feature animation projects developed by him will be exclusively offered under the DreamWorks Animation name. The license has been granted on a royalty-free basis to the entities. Among other provisions, the Prior Spielberg Agreement contains restrictions on the release of films by these entities using the DreamWorks name on the same date as, or near, the release of a DreamWorks Animation film. In August 2010, the Prior Spielberg Agreement was amended to, among other things, approve one of the entities as a sublicensee under the Prior Spielberg Agreement in connection with the production, distribution and other exploitation of certain television motion pictures. In December 2011, the Prior Spielberg Agreement was further amended to, among other things, incorporate a mechanism pursuant to which the Company has the right, but not the obligation, to approve certain exceptions to the limited permitted uses of the Company’s licensed trademarks, service marks and trade names pursuant to the Prior Spielberg Agreement. In December 2014, the Prior Spielberg Agreement was further amended to, among other things, extend its term and provide for the amendment of a sublicense agreement between two entities controlled by Mr. Spielberg’s for rights granted to them by the Prior Spielberg Agreement to reflect the extended term. In December 2015, the Prior Spielberg Agreement was further amended to, among other things, extend its term and consent to the assignment of the sublicense agreement to another entity in which Mr. Spielberg owns a minority interest. The Prior Spielberg Agreement expired by its terms in January 2016.

 

In January 2016, the Company entered into a new License Agreement (the “Spielberg License Agreement”) with a number of entities owned and controlled by Steven Spielberg. Under the Spielberg License Agreement, the Company has granted the entities the exclusive right to use the name “DreamWorks SKG Pictures” and trademark in connection with live-action films. The Spielberg License Agreement has a term of three years. As part of the Spielberg License Agreement, Mr. Spielberg has agreed that any feature animation projects developed by him will be exclusively offered under the DreamWorks Animation name. The license has been granted on a royalty-free basis to the entities. Among other provisions, the Spielberg License Agreement contains restrictions on the release of films by these entities using the DreamWorks name on the same date as, or near, the release of a DreamWorks Animation film.

 

Services from Entities Controlled by Steven Spielberg

 

During 2015, the Company received casting and other services from entities controlled by Steven Spielberg. The Company paid approximately $277,125 for the services provided during 2015.

 

Separation Agreement Between DreamWorks Studios and DreamWorks Animation

 

Prior to October 27, 2004 (the “Separation Date”), we operated as a business division of DreamWorks LLC (“DreamWorks Studios”). On the Separation Date, we entered into a separation agreement (the “Separation Agreement”) for the purpose of establishing DreamWorks Animation as a separate stand-alone entity (the “Separation”). We also entered into a number of other agreements with DreamWorks Studios establishing the terms of our relationships with DreamWorks Studios.

 

In January 2006, in connection with the acquisition of DreamWorks Studios by Viacom Inc. and certain of its affiliates (“Viacom”) (including Paramount Pictures and its affiliated entities (“Paramount”)), certain agreements and relationships between DreamWorks Animation and DreamWorks Studios were amended, modified or terminated. In general, these amendments, modifications or terminations were effective for periods beginning after January 31, 2006. Where applicable, such changes are noted in the following related-party transaction descriptions.

 

The Separation Agreement sets forth the agreements among DreamWorks Animation, DreamWorks Studios and DreamWorks Animation L.L.C. regarding the principal transactions required to effect the Separation and other agreements governing DreamWorks Animation’s relationship with DreamWorks Studios.

 

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The Separation.    To effect the Separation, DW Funding, a wholly owned subsidiary of DreamWorks Studios that was formed for the express purpose of purchasing assets used in connection with its securitization facility, transferr