DEF 14A 1 d330685ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

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

Take-Two Interactive Software, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

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LOGO

July 27, 2017

Dear Shareholders:

You are cordially invited to attend the Annual Meeting of Shareholders of Take-Two Interactive Software, Inc., that will be held on September 15, 2017, at 9:00 a.m. local time at the W Hotel, 201 Park Avenue South, New York, New York 10003.

Details of the business to be conducted at the Annual Meeting are given in the attached Notice of Annual Meeting of Shareholders and Proxy Statement, which you are urged to read carefully.

We are pleased to take advantage of Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their shareholders on the Internet. We believe these rules allow us to provide our shareholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting. On or about August 1, 2017, we expect to begin mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our Proxy Statement and Annual Report and vote online; however, shareholders of record will receive a copy of the Proxy Statement and Annual Report by mail instead of receiving the Notice of Internet Availability of Proxy Materials. The Proxy Statement and Notice of Internet Availability of Proxy Materials contain instructions on how you can receive a paper copy of the Proxy Statement and Annual Report if you only received a Notice of Internet Availability of Proxy Materials by mail.

Whether or not you plan to attend the meeting in person, it is important that your shares be represented and voted. After reading the Notice of Annual Meeting of Shareholders and Proxy Statement, we urge you to cast your vote via the Internet or, if you received a proxy card, complete, sign, date and return the proxy card in the envelope provided, or follow the instructions for voting by telephone that may be included therein. If the address on the Notice of Internet Availability of Proxy Materials or the accompanying material is incorrect, please advise our Transfer Agent, American Stock Transfer & Trust Company, in writing at 6201 15th Avenue, Brooklyn, New York 11219.

We hope to see you at the meeting and appreciate your continued support.

Sincerely,

 

 

LOGO

Strauss Zelnick

Executive Chairman and Chief

Executive Officer

Take-Two Interactive Software, Inc., 622 Broadway, New York, New York 10012, USA

tel 646.536.2842     fax 646.536.2926     www.take2games.com


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LOGO

TAKE-TWO INTERACTIVE SOFTWARE, INC.

622 Broadway

New York, New York 10012

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

September 15, 2017

 

 

To the Shareholders of TAKE-TWO INTERACTIVE SOFTWARE, INC.:

NOTICE IS HEREBY GIVEN that the 2017 Annual Meeting (the “Annual Meeting”) of Shareholders of Take-Two Interactive Software, Inc. (the “Company”) will be held on September 15, 2017, at 9:00 a.m. local time at the W Hotel, 201 Park Avenue South, New York, New York 10003, to consider and vote upon the following:

 

  1. Election of seven directors;

 

  2. Approval, on a non-binding advisory basis, of the compensation of the Company’s “named executive officers” as disclosed in the attached proxy statement;

 

  3. Approval, on a non-binding advisory basis, of the frequency of the advisory vote on the compensation of the Company’s “named executive officers”;

 

  4. Approval of the adoption of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan;

 

  5. Approval of the adoption of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France;

 

  6. Approval of the adoption of the Take-Two Interactive Software, Inc. 2017 Global Employee Stock Purchase Plan;

 

  7. Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018; and

 

  8. Other business that may properly come before the Annual Meeting or any adjournment thereof.

The Board of Directors believes that the election of the nominated directors, the approval on an advisory basis of the compensation of the named executive officers, the approval of an annual advisory vote on the compensation of the named executive officers, the approval of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan, the approval of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France, the approval of the Take-Two Interactive Software, Inc. 2017 Global Employee Stock Purchase Plan, and the ratification of the appointment of Ernst & Young LLP are in the best interests of the Company and its shareholders and, accordingly, recommends a vote “FOR” or “1 Year”, as applicable, for each of these proposals.

Only shareholders of record at the close of business on July 21, 2017 are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

By Order of the Board of Directors,

 

LOGO

Matthew Breitman

Senior Vice President, Deputy General Counsel and

Corporate Secretary

July 27, 2017

 

 

Your vote is very important, regardless of the number of shares you own. Please read the attached proxy statement carefully and complete and submit your proxy card via the Internet or telephone (as instructed on your proxy card) or sign and date your paper proxy card as promptly as possible and return it in the enclosed envelope.


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TAKE-TWO INTERACTIVE SOFTWARE, INC.

622 Broadway

New York, New York 10012

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 15, 2017

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Take-Two Interactive Software, Inc. (the “Company” or “Take-Two”) for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on September 15, 2017 at 9:00 a.m. local time, including any adjournment or adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

The Company expects to either mail or provide notice and electronic delivery of this Proxy Statement and the enclosed form of proxy to shareholders on or about August 1, 2017.

Proxies in the accompanying form, duly executed and returned to the management of the Company and not revoked, will be voted at the Annual Meeting. A proxy may be revoked by the shareholder of record at any time prior to the voting of the proxy by a subsequently dated proxy, by written notification to the Secretary of the Company, or by personally withdrawing the proxy at the Annual Meeting and voting in person.

The address of the principal executive offices of the Company is 622 Broadway, New York, New York 10012, and its telephone number is (646) 536-2842.

The rules of the Securities and Exchange Commission (“SEC”) require us to notify all shareholders, including those shareholders to whom we have mailed proxy materials, of the availability of our proxy materials through the Internet.

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to be held on September 15, 2017

Our Proxy Statement and 2017 Annual Report to Shareholders are available at

http://www.proxyvote.com

 

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TABLE OF CONTENTS

 

     Page  

Proxy Summary

     3  

Proposal 1: Election of Directors

     9  

Corporate Governance and Board Practices

     14  

Board Committees

     16  

Other Executive Officers

     18  

Proposal 2: Non-binding Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

     19  

Proposal 3: Non-binding Advisory Vote Regarding the Frequency of Holding Future Advisory Votes to Approve the Compensation of the Company’s Named Executive Officers

     20  

Compensation Discussion and Analysis

     21  

Executive Summary

     21  

Detailed Discussion and Analysis

     31  

Objectives and Philosophy of Executive Compensation

     31  

Compensation to Executive Chairman and CEO and President

     32  

Other NEO Compensation

     35  

Competitive Market Positioning

     36  

Principal Elements of Executive Compensation

     38  

Operation of the Compensation Committee

     43  

Compensation Governance Practices

     44  

Report of the Compensation Committee of the Board of Directors

     46  

Risk Assessment of Overall Compensation Program

     46  

Executive Compensation

     47  

Voting Security Ownership of Certain Beneficial Owners and Management

     59  

Certain Relationships and Related Transactions

     61  

Section 16(a) Beneficial Ownership Compliance

     68  

Proposal 4: Adoption of the 2017 Stock Incentive Plan

     69  

Proposal 5: Adoption of the 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France

     84  

Proposal 6: Adoption of the 2017 Global Employee Stock Purchase Plan

     87  

Proposal 7: Ratification of Appointment of Independent Registered Public Accounting Firm

     94  

Independent Registered Public Accountants

     95  

Report of the Audit Committee of the Board of Directors

     96  

Information about the Annual Meeting and Voting

     97  

Availability of Certain Documents

     101  

No Incorporation By Reference

     102  

Shareholder Proposals for Next Annual Meeting

     102  

Other Matters

     102  

Annex A—Reconciliation of GAAP Net Income to Adjusted EBITDA

     A-1  

Annex B—2017 Stock Incentive Plan

     B-1  

Annex C—2017 Stock Incentive Plan Qualified RSU Sub-Plan for France

     C-1  

Annex D—2017 Global Employee Stock Purchase Plan

     D-1  

 

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PROXY SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement and does not include all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.

2017 Annual Meeting of Shareholders

 

Date and Time

 

September 15, 2017, at 9:00 a.m.

Location

 

W Hotel, 201 Park Avenue South, New York, New York 10003

Record Date

 

July 21, 2017

Voting Matters and Board Recommendations

 

Item

  

Proposal

 

Board’s

Recommendation

 

Page

Number

1

   Election of seven director nominees  

FOR

(each nominee)

  9

2

   Advisory vote to approve executive compensation  

FOR

  19

3

  

Advisory vote on frequency of advisory vote to approve executive compensation

 

  1 YEAR   20

4

   Approval of the adoption of the 2017 Stock Incentive Plan  

FOR

  69

5

  

Approval of the adoption of the 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France

 

 

FOR

  84

6

  

Approval of the adoption of the 2017 Global Employee Stock Purchase Plan

 

  FOR   87

7

  

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018

 

  FOR   94

 



 

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Company Performance Highlights

The Company delivered strong financial results in fiscal 2017 and continued to execute successfully on our strategy of developing a select number of high-quality titles that make us a leader in our industry.

 

LOGO

Board of Directors Highlights

Our seven nominees include six independent, outside directors who as a group have extensive and diverse management and subject matter experience and knowledge that is critical to the Company.

 

 

  Active and empowered lead independent director role          
 

 

Annual election of all directors

       

Independence 86%

   
 

  Majority vote standard for uncontested director elections       Tenure   Age    
 

  6 out of 7 current directors are independent (all except for our Chairman and CEO)      

~7.6 years

(On Average)

 

~59

(On Average)

   
 

  Board membership marked by diversity, leadership and a variety of perspectives              
             
 

  Deliberate approach to Board refreshment, including the addition of a new independent director in 2017          
 

  Annual review of CEO and Chairman by independent directors          

 



 

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                                Committee Memberships
Name   Age     Director
Since
  Principal Occupation   Independent  

Other Public
Boards

  Audit   Compensation   Corporate
Governance
  Executive

Robert A.

Bowman

    62    

April

2007

  President, Business and Media, Major League Baseball     2   Chair            

Michael

Dornemann

Lead

Independent

Director

    71     March 2007  

Retired Chairman

and CEO, Bertelsmann Entertainment

    —           Chair

J Moses

    58     March 2007   Principal, J Moses Projects     —           Chair    

Michael

Sheresky

    49     March 2007   Partner, United Talent Agency     —         Chair    

LaVerne

Srinivasan

    55     March 2017   Vice President, Carnegie Corporation of New York     —                

Susan

Tolson

    55     March 2014   Retired Portfolio Manager, Capital Research and Management Company     3              

Strauss

Zelnick

    60     March 2007   Chairman and CEO, Take-Two Interactive Software, Inc.       1              

Shareholder Engagement

The Board of Directors oversees and regularly participates, together with management, in an extensive, year-round shareholder engagement practice to seek shareholder feedback on the Company’s board, governance, and executive compensation practices. In the months leading up to the filing of this Proxy Statement, we sought discussions with holders of more than 55% of our outstanding shares, and had discussions with a number of our top holders (percentage based on the Company’s investors’ most recent filings). Investor perspectives gained through these discussions help to inform discussions in the boardroom and are considered by the Board and its committees in decision-making.

 



 

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Corporate Governance Highlights

Further, the Company’s sound governance practices and policies demonstrate the Board’s commitment to strong corporate governance, effective risk management and robust independent oversight of management by the Board. The Company’s governance highlights include:

 

  Extensive, year-round shareholder engagement

 

  Annual evaluation of the Board and its Committees

 

  Annual review of Board leadership structure

 

  Lead Independent Director with clearly defined role and responsibilities

 

  Board oversight of risk management

 

  Shareholder right to call special meetings

 

  Shareholder right to act by written consent

 

  No supermajority voting requirements

 

  Strong anti-hedging, anti-pledging and insider trading policies

 

  Robust Code of Business Conduct and Ethics for all directors and officers

 

  Independent Audit Committee, Compensation Committee and Corporate Governance Committee

Executive Compensation Highlights

The Company maintains strong compensation governance practices that support our pay-for-performance principles and align management incentives with the interests of our shareholders. A significant portion of our Company’s executive compensation is performance-based.

 

 

LOGO

 



 

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We have also adopted a number of “best practices” with respect to executive compensation, including:

 

  Clawback policy with respect to incentive compensation (see page 44)

 

  Caps on annual bonuses to NEOs

 

  Double-trigger vesting on a change in control for grants made under an equity plan after July 2014

 

  Meaningful stock ownership requirements

 

  No repricing of stock options without shareholder approval

 

  Limited perquisites

 

  No tax gross ups for excise taxes on parachute payments

 

  Annual compensation risk assessment

 

  Retention of independent compensation consultants

 

  Balanced compensation approach between short- and long-term incentive opportunities

Adoption of the 2017 Stock Incentive Plan

We are asking that our shareholders approve the adoption of the 2017 Stock Incentive Plan. If the 2017 Stock Incentive Plan is approved by our shareholders, the Company will be authorized to issue up to 5,200,000 additional shares of common stock under such plan. The adoption of the 2017 Stock Incentive Plan is necessary to enable the Company to continue to secure the creative talent that drives company performance and establish equity incentives that focus the management team on long-term sustainable performance. Specifically, equity is used to attract, retain and motivate the Company’s creative talent, which is critical to executing Take-Two’s long-term strategy, and to align the interests of creative employees with the interests of the Company’s shareholders.

 

      Our creative employees at our wholly-owned labels, Rockstar Games and 2K, drive our business, are critical to our continued success, and help us build shareholder value.

 

      Equity incentives are used throughout Take-Two, beyond the executive level.

 

      Almost two-thirds of our employees work in our development studios and have highly specialized technical capabilities to develop software titles for multiple platforms.

 

      In fiscal 2017, 52% of equity awards were used to retain creative talent.

   

 

LOGO

 

 



 

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Plan highlights include:

 

  Annual limits on awards to individual participants

 

  Non-liberal recycling of shares used to satisfy tax withholding obligations or as payment for the exercise price or base price for stock options and SARs

 

  No evergreen provision for share reserve

 

  No payment of dividends or dividend equivalents on unvested awards

 

  Annual compensation limits for non-employee directors

 

  Minimum vesting periods for certain awards

 

  No repricing of underwater stock options or SARs without shareholder approval

 

  No discounted stock options or SARs

 

  Clawback provisions

 

  Non-liberal definition of change in control

 

  No automatic grants

 

  Double-trigger acceleration of equity vesting on a change of control

Adoption of the 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France

In connection with approving the adoption of the 2017 Stock Incentive Plan, we are asking our shareholders to approve the adoption of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France (the “French Qualified RSU Sub-Plan”). Approval of the French Qualified RSU Sub-Plan is contingent upon shareholder approval of the 2017 Stock Incentive Plan. The adoption of the French Qualified RSU Sub-Plan will allow our French employees to receive grants of restricted stock units with preferential tax treatment because one of the conditions for granting French qualified restricted stock units under French law is that such restricted stock units be granted pursuant to an equity incentive plan approved by shareholders after December 31, 2016. As noted above, an additional 5,200,000 shares of our common stock will be available for issuance under the 2017 Stock Incentive Plan if it is approved, and any French qualified restricted stock units granted under the French Qualified RSU Sub-Plan will come from the shares available under the 2017 Stock Incentive Plan. The approval of the French Qualified RSU Sub-Plan will not increase the number of shares or awards available under the 2017 Stock Incentive Plan.

Adoption of the 2017 Global Employee Stock Purchase Plan

We are asking our shareholders to approve the adoption of the Take-Two Interactive Software, Inc. 2017 Global Employee Stock Purchase Plan (the “2017 Global ESPP”). The adoption of the 2017 Global ESPP will allow us to provide employees of the Company and certain designated subsidiaries and affiliates (collectively, “Employees”) an opportunity to obtain a proprietary interest in the continued growth and prosperity of Take-Two through ownership of its shares of common stock. The Company intends for the 2017 Global ESPP to have two components: a component that is intended to qualify as an “employee stock purchase plan” under Section 423(b) of the Internal Revenue Code, as amended (“Code”) (the “Code Section 423 Component”), and a component that is not intended to qualify as an “employee stock purchase plan” under Code Section 423 (the “Non-Code Section 423 Component”). The Code Section 423 Component will be construed so as to extend and limit participation in a uniform and non-discriminatory basis consistent with the requirements of Code Section 423. The Non-Code Section 423 Component will be effectuated via separate offerings under one or more sub-plans of the 2017 Global ESPP for employees of participating affiliates in countries outside of the United States in order to achieve tax, employment, securities law or other purposes and objectives, and to conform the terms of the sub-plans with the laws and requirements of such countries.

 



 

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ELECTION OF DIRECTORS

(Proposal 1)

All members of the Board of Directors stand for election on an annual basis, and at the Annual Meeting seven directors will be elected to hold office for a term expiring at the 2018 Annual Meeting of Shareholders. The Board of Directors, upon the recommendation of the Corporate Governance Committee, has nominated the individuals named below. Each director will be elected to serve until a successor is elected and qualified or until the director’s earlier resignation or removal.

The Corporate Governance Committee is responsible for evaluating the size and composition of the Board of Directors relative to the evolving needs of the Company at any given time, and actively identifying qualified individuals to become new director nominees as needed. The Corporate Governance Committee has developed criteria, including certain personal and professional qualities, it uses to evaluate whether the potential nominee would be a qualified director candidate for service on Take-Two’s Board of Directors. For further detail, please reference the “Board Committees” section.

Our seven nominees include six independent, outside directors who as a group have extensive and diverse management and subject matter experience and knowledge that is critical to the Company. The average director tenure is approximately 7.6 years, and the average age of the board members is 59.

At the Annual Meeting, the proxies given by shareholders will be voted individually for the election of the persons named herein as director nominees, unless a proxy card specifies that it is not to be voted in favor of any such nominee. If any of the nominees listed below shall be unable to serve, it is intended that the proxy will be voted for such other nominees as may be designated by the Board of Directors. Each of the persons named herein has indicated to the Board of Directors that he or she will be available to serve as a director of the Company. In an uncontested election, the seven persons receiving the highest number of “FOR” votes at the Annual Meeting will be elected. However, the Company’s bylaws provide that any nominee for director who receives a greater number of votes “withheld” from the individual’s election than votes “for” such election promptly shall tender the individual’s resignation to the Corporate Governance Committee following certification of the shareholder vote. For more information regarding this policy see “Policy on Majority Voting for Directors.”

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF THE NOMINEES NAMED BELOW:

 

Robert A. Bowman

 

 

LOGO

Independent Director

Chair: Audit Committee

Age: 62

Director since: April 2007

Beneficial owner of 132,951 shares

 

 

  

Mr. Bowman is President, Business and Media at Major League Baseball and is responsible for directing revenue-generating and media rights activities across all Major League Baseball entities, a position he has held since December 2014. Mr. Bowman is also the Chief Executive Officer of Major League Baseball Advanced Media, L.P., a full service solutions provider delivering world-class digital experiences and distributing content through all forms of interactive media, including managing interactive and Internet rights for Major League Baseball, a position he has held since 2000.

 

Prior executive roles: Before becoming President, Business and Media at Major League Baseball and the Chief Executive Officer of Major League Baseball Advanced Media, L.P., Mr. Bowman was President and Chief Operations Officer of ITT Corporation from 1995 through 2000, where he previously served as Chief Financial Officer from 1991 through 1995. Mr. Bowman served as the Treasurer of the State of Michigan from 1983 through 1990, overseeing its fiscal policy, tax collections and the state’s pension fund.

 

Other boards: Mr. Bowman serves as President of the Michigan Education Trust (the state’s pre-paid tuition grant program). Mr. Bowman serves as a director and a member of the audit committee, the related party relationships committee and the technology committee of Lands’ End, Inc., a leading multi-channel retailer of casual clothing, accessories and footwear, as well as home products, and as a director and a member of the audit committee of Vince Holding Corp., a diversified apparel company. Mr. Bowman served as a director of The Warnaco Group, Inc. from 2004 to 2013 and ViaSat Inc. from 2013 to 2016.

 

Key experience and qualifications: Mr. Bowman brings relevant subject matter expertise, including in the areas of digital media and entertainment, from his role at Major League Baseball as well as from current and past board service at other companies. He brings strong business operations experience, and financial expertise as a former large company CFO, as well as financial and investment perspective from his tenure as Treasurer of the State of Michigan.

 

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Michael Dornemann

 

 

LOGO

Lead Independent Director

Chair: Executive Committee

Member: Audit, Compensation and
Corporate Governance Committees

Age: 71

Director since: March 2007

Beneficial owner of 16,394 shares

  

Mr. Dornemann is an entertainment and marketing executive with more than 30 years of management consulting, corporate development, strategic advisory and media experience. Prior to 2001, Mr. Dornemann was an executive board member of Bertelsmann AG for 16 years and Chairman and Chief Executive Officer of Bertelsmann Entertainment (music and television division, BMG and RTL Group). Before that, he held positions with IBM and Boston Consulting Group.

 

Other boards: Mr. Dornemann has previously served on several boards, including as Chairman of Jet Set AG, a worldwide fashion company based in Switzerland, until 2009; as a director of Columbia Music Entertainment (CME) of Japan until 2010; and as vice-chairman and as an audit and compensation committee member of Access Worldwide Communications until 2013.

 

Key experience and qualifications: Mr. Dornemann’s highly relevant leadership, management, marketing and consulting experience, including his role as Chief Executive Officer of Bertelsmann Entertainment, strongly qualifies him to provide effective leadership to the independent directors, and to contribute to all aspects of board discussion and operations, including strong oversight of our management agreement with ZelnickMedia Corporation (“ZelnickMedia”). His accomplished history of service with fashion and entertainment companies, including as an outside director, provides an unusual level of insight into both our business and our governance.

J Moses

 

 

LOGO

Independent Director

Chair: Corporate Governance Committee

Member: Compensation Committee

Age: 58

Director since: March 2007

Beneficial owner of 12,437 shares

  

Mr. Moses is a media executive, entrepreneur and consultant with more than 30 years of experience in the television, radio, publishing, video game and digital media industries. Mr. Moses is currently a principal and founder to a portfolio of early stage digital ventures in the United States and Southeast Asia. Mr. Moses is also the Chairman and CEO of Bingegiving, a public benefit corporation that is a digital platform that turns digital actions into philanthropic gifts and is the Chairman of Rbau Kitchen, a public benefit corporation that is a digital engine for food integration.

 

Prior executive roles: Mr. Moses was most recently an advisor to the President of KapanLagi Network, the largest on-line media business in Indonesia from August 2013 to May 2015. Mr. Moses was the Founder and, from October 1998 through July 2009, the Chief Executive Officer of UGO Networks, Inc., an online publisher delivering information and entertainment for gamers. Mr. Moses managed the sale of that company to the Hearst Corporation in August 2007. Mr. Moses previously served as President of MTV Russia and oversaw the successful establishment of MTV Networks in Russia in 1998. Mr. Moses also served as the President of BMG Interactive from 1993 to 1996, the former video game and new technologies division of BMG Entertainment. Most recently, Mr. Moses was the Founder and, from 2010 to 2014, President of Bagooba, a social media start up.

 

Other boards: Mr. Moses serves on advisory boards to Simulmedia, Inc. and Flow Corp and as the Chairman of Bingegiving and Rbau Kitchen.

 

Key experience and qualifications: Mr. Moses provides insight based on vast media experience and leadership history, including his roles as CEO of UGO Networks, President of MTV Russia and President of BMG Interactive, and his deep understanding of the interactive entertainment industry and its global opportunities.

 

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Michael Sheresky

 

 

LOGO

Independent Director

Chair: Compensation Committee

Member: Corporate Governance

Committee and Executive

Committee

Age: 49

Director since: March 2007

Beneficial owner of 68,417 shares

  

Mr. Sheresky is a partner at United Talent Agency, where he has served as a motion picture talent agent since June 2009. Mr. Sheresky is responsible for structuring projects and deals in the areas of motion picture and television development, production and distribution.

 

Prior professional roles: From 1992 through 1995, and then from 1997 through May 2009, Mr. Sheresky held a number of positions at the William Morris Agency, a talent agency, most recently Senior Vice President in its Motion Picture Department. During that time, he represented authors, journalists, screenwriters, directors, producers and actors in the motion picture and television businesses.

 

Key experience and qualifications: Mr. Sheresky’s entertainment experience as a talent agent is an important asset to the Board of Directors, including his particularly strong insight into the development and compensation of creative talent and of management.

 

LaVerne Srinivasan

 

LOGO

Independent Director

Member: Corporate Governance Committee

Age: 55

Director since: March 2017

Beneficial owner of 792 shares

  

 

Ms. Srinivasan is Vice President of the National Program and Program Director for Education at the Carnegie Corporation of New York, employing creative strategies and innovative thinking to strengthen urban education. Since 2014, she has overseen grant making and other activities aimed at engaging parents and communities, improving teaching and leadership for learning, advancing innovative learning environment designs, providing K-12 pathways to college and career success, and fostering integrated approaches to innovation and learning in the field of education.

 

Prior professional roles: From 2012 through 2014, Ms. Srinivasan was the Co-Founder of Fiero Now, an education technology company. Prior to Fiero Now, she worked at various educational technology, urban district change, and non-profit education reform companies, including Time to Know, Education Champions for All and New Leaders for New Schools. From 2003 through 2006, Ms. Srinivasan served as Deputy Chancellor for the New York City Department of Education. In addition, from 1993 through 2003, she served in various roles at BMG Entertainment, including as Senior Vice President and General Counsel.

 

Other boards: Ms. Srinivasan serves on the board of Young Audiences New York and the national advisory board of College Promise Campaign, and was a founding member of the Consortium for Policy Research in Education’s task force on Strategic Management of Human Capital.

 

Key experience and qualifications: Ms. Srinivasan brings to the Board of Directors strong leadership skills, extensive experience leveraging technology in the education and entertainment industries, and deep marketing expertise from her previous positions.

 

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Susan Tolson

 

 

LOGO

Independent Director

Member: Audit Committee

Age: 55

Director since: March 2014

Beneficial owner of 17,851 shares

 

  

Ms. Tolson is a financial executive with more than 20 years of experience in the financial services industry. Ms. Tolson worked at Capital Research and Management Company and Capital Research Company, subsidiaries of The Capital Group Companies, Inc., from 1990 to 2010. She served in various capacities, including Senior Vice President and Portfolio Manager. Before joining Capital Research, Ms. Tolson was an Investment Officer at Aetna Investment Management Company, making private investments in media and entertainment companies.

 

Other boards: Ms. Tolson is a director of Groupe Lagardère (a global company operating in media, entertainment, sports and retail). She also serves as a board member and audit committee member of the American Cinémathèque (a nonprofit cultural organization); as a board member, audit committee member and nomination and compensation committee member of Worldline E-Payments Services (which focuses on e-payment transactional services); and as a board member, compensation committee member and nominating and governance committee member of OUTFRONT Media Inc. (a provider of advertising space on out-of-home advertising structures and sites). She was a trustee and member of the business affairs committee of The American University of Paris until March 2014, where she served on the investment committee.

 

Key experience and qualifications: Ms. Tolson brings to the Board of Directors significant experience in entertainment and financial/investment matters from her previous positions, together with her existing current service as a director of both for profit and nonprofit organizations.

 

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Strauss Zelnick

 

 

LOGO

Chairman and CEO

Member: Executive Committee

Age: 60

Director since: March 2007

Beneficial owner of 897,100 shares

  

Mr. Zelnick has been Chairman of the Company since March 2007, Executive Chairman of the Board of Directors since February 2008 and Chief Executive Officer of the Company since January 2011. Mr. Zelnick also is a partner in ZelnickMedia. Mr. Zelnick serves as Executive Chairman of the Board of Directors and Chief Executive Officer of the Company pursuant to the terms of the 2014 Management Agreement between the Company and ZelnickMedia. See “Certain Relationships and Related Transactions—Management Agreement.”

 

Prior executive roles: Mr. Zelnick served as Executive Chairman of Direct Holdings Worldwide, Inc., the parent company of Time Life and Lillian Vernon, until the company was sold to Reader’s Digest on March 2, 2007. Prior to forming ZelnickMedia, Mr. Zelnick was President and Chief Executive Officer of BMG Entertainment, a $4.7 billion music and entertainment company with more than 200 record labels and operations in 54 countries. Mr. Zelnick’s appointment as President and Chief Executive Officer of BMG Entertainment followed his tenure as President and Chief Executive Officer of BMG’s North American business unit from 1994 through 1998. Before joining BMG Entertainment, Mr. Zelnick was President and Chief Executive Officer of Crystal Dynamics, a leading producer and distributor of interactive game software. Prior to that, he spent four years as President and Chief Operating Officer of 20th Century Fox, where he managed all aspects of its worldwide motion picture and distribution business. Previously, he spent three years at Vestron Inc. as a senior executive, and rose to become President and Chief Operating Officer. Mr. Zelnick also served as Vice President, International Sales, Television for Columbia Pictures.

 

Other boards: Mr. Zelnick currently serves as a member of the board of directors, as a member of the compensation committee and the investment committee, and as the chairperson of the audit committee and the nominating and corporate governance committee of Starwood Property Trust, Inc., a public company. He also serves as a member of the boards of directors of Alloy, Inc., 9 Story Limited and Education Networks of America, all privately-held companies. Mr. Zelnick serves as Chairman of the Entertainment Software Association. Mr. Zelnick is also an associate member of the National Academy of Recording Arts and Sciences and served on the board of directors of the Recording Industry Association of America and the Motion Picture Association of America.

 

Key experience and qualifications: Mr. Zelnick provides the Company’s Board of Directors with valuable insight in organization and management obtained from his experiences, including acting as Executive Chairman and CEO of the Company.

 

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Each director nominee for our Board of Directors is highly qualified and brings a diversity of skills and experiences to our boardroom. These skills are relevant to our business and enable the Board of Directors to provide strong oversight and effectively oversee management’s execution of strategy.

 

 

LOGO

Corporate Governance and Board Practices

Shareholder Engagement. The Board of Directors oversees and regularly participates in an extensive, year-round shareholder engagement practice. In the months leading up to the filing of this Proxy Statement, we sought discussions with holders of more than 55% of our outstanding shares, and had discussions with a number of our top holders (percentage based on the Company’s investors’ most recent filings). These discussions included the Chair of the Compensation Committee and/or members of Take-Two’s senior management team. Throughout these discussions, we sought shareholder feedback on a wide range of topics, including the management agreement with ZelnickMedia, our executive compensation program, our Compensation Discussion and Analysis disclosure, and our use of equity as an incentive tool. Feedback from shareholders was generally positive on compensation and our enhanced disclosure in the 2016 proxy statement, with some of our shareholders inquiring about the rationale for the performance metrics utilized in our incentive plans, as well as how the Board of Directors thinks about using equity as a key recruiting and retention tool. We also discussed corporate governance matters, including our approach to Board composition, refreshment, and evaluation practices.

Independent Directors. The Board of Directors has determined that Messrs. Bowman, Dornemann, Moses and Sheresky and Mses. Srinivasan and Tolson are “independent” directors as defined under the rules of The NASDAQ Stock Market. During fiscal 2017 the independent directors met in executive session (outside the presence of management) on eight (8) occasions.

Board Structure. The Board of Directors is led by Mr. Zelnick in his role as Executive Chairman. Mr. Zelnick is also the Chief Executive Officer. The Board of Directors also has designated Mr. Dornemann as Lead Independent Director (as described below), a position that complements the Executive Chairman’s role, and serves as the principal liaison between the independent directors and the Executive Chairman. Mr. Dornemann was also designated by the Board of Directors as the Chair of the Executive Committee.

The Board of Directors reviews its leadership structure annually. The Board of Directors has determined that in light of the Company’s clear strategy and the strength of its overall governance practices, at this time a combined Chairman/CEO role will more effectively unify the Board of Directors and management around the specific initiatives necessary to support the Company’s strategy. The Board of Directors continues to evaluate Mr. Zelnick annually in each of his roles, and has retained the discretion to separate the Chairman/CEO roles at any time if the Board of Directors believes it would better serve the interests of the Company and its

 

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shareholders. The Board of Directors has also concluded that its Lead Independent Director position effectively balances any potential risk of concentration of authority that may exist with a combined Chairman/CEO position.

Lead Independent Director. As Lead Independent Director, Mr. Dornemann serves as the principal liaison between the independent directors and the Executive Chairman.

 

The Lead Independent Director is responsible for:

 

   

presiding at all Board of Directors meetings at which the Chairman of the Board is not present;

 

   

convening regular and special meetings of the independent directors;

 

   

developing the agenda for executive sessions of the independent directors and working with the Chairman to develop and approve the agenda for meetings of the full Board of Directors, including scheduling to ensure there is sufficient time for discussion;

 

   

coordinating feedback to the Chairman on behalf of the independent directors;

 

   

coordinating with the Company’s General Counsel to respond to shareholders who have addressed a communication to the independent directors;

 

   

making himself available for shareholder communication, as appropriate (other independent directors may also participate in such communication at times); and

 

   

handling any matters concerning an actual or potential conflict of interest involving any other director.

The Lead Independent Director meets separately with one or more of the Chief Executive Officer, the President, the Chief Financial Officer and the General Counsel approximately bi-weekly to discuss the business strategy of the Company in greater detail and provide additional guidance to such members of management. These meetings enable the Lead Independent Director to gain a deeper understanding of any matters being handled by management which should be brought to the attention of the entire Board of Directors or a committee thereof, as well as an opportunity to obtain additional information on any matters which the Lead Independent Director believes may otherwise be of interest to the other directors and to provide advice to the other directors regarding such matters. The Lead Independent Director is a member of each committee of the Board of Directors.

Annual Evaluations. The Board of Directors and its committees conduct annual self-evaluations to determine whether it and its committees are functioning effectively and properly. The Corporate Governance Committee assists the Board of Directors in its review. Furthermore, the Compensation Committee performs an annual performance review of the Chairman, CEO and other named executive officers.

Risk Oversight. The Board of Directors exercises direct oversight of strategic risks to the Company. The Audit Committee reviews the Company’s policies for risk assessment and risk management relating to financial reporting and internal controls, as well as operational risk relating to digital and physical security, including security controls over customer data, and assesses steps management has taken to control such risks and exposures. The Compensation Committee oversees risks relating to compensation programs and policies. See “Risk Assessment of Overall Compensation Program.” The Governance Committee oversees operational risk relating to insurance. In each case management periodically reports to our Board of Directors or to the relevant committee, which provides guidance on risk appetite, assessment, and mitigation. Each committee charged with risk oversight reports to our Board of Directors on those matters.

Meetings of Directors. The Board of Directors held eleven (11) meetings during fiscal 2017. Each of the incumbent directors attended at least 75% in the aggregate of all meetings of the Board of Directors and committees on which the individual served for the period of his or her service in the fiscal year and Ms. Srinivasan, who joined the Board of Directors in March 2017, has attended all of the meetings of the Board of Directors and committee on which she serves since joining the Board of Directors. In addition, periodically

 

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(approximately every 18 months), the Board of Directors convenes at an off-site strategic planning session, which typically includes presentations and discussions with senior management, to review our strategic, competitive and financial performance goals as well as to discuss the Company’s long-term strategic plan. The last such off-site strategic planning session of the Board of Directors took place during the fiscal year ended March 31, 2016 (“fiscal 2016”).

Attendance at Shareholder Meetings. The Board of Directors has adopted a policy whereby director nominees are strongly encouraged to attend the Company’s annual meeting of shareholders. All of our then incumbent director nominees attended the last annual meeting of the Company’s shareholders in September 2016.

Policy on Majority Voting for Directors. In an uncontested election, any nominee for director who receives a greater number of votes “withheld” from the individual’s election than votes “for” such election promptly shall tender the individual’s resignation to the Corporate Governance Committee following certification of the shareholder vote. The Corporate Governance Committee promptly will consider the resignation offer and recommend to the Board of Directors the action to be taken with respect to such offered resignation. The Board of Directors will act on the Corporate Governance Committee’s recommendation within 90 days following the date of the Annual Meeting. Thereafter, the Board of Directors promptly will disclose its decision whether to accept the director’s resignation offer (and the reasons for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K filed with the SEC. Any director tendering a resignation pursuant to this provision shall not participate in the Corporate Governance Committee recommendation or action of the Board of Directors regarding whether or not to accept the resignation offer. Abstentions and broker non-votes with respect to a director’s election will not be counted as votes “withheld” for purposes of this policy.

Code of Business Conduct and Ethics. The Company has adopted a written Code of Business Conduct and Ethics that applies to directors, officers and employees of the Company, including the Company’s principal executive officer, principal financial officer, principal accounting officer and controller and any person performing similar functions. A copy of the Code of Business Conduct and Ethics is posted on the Company’s website at “www.take2games.com” and can be accessed by clicking on “Corporate,” then “Corporate Governance,” then “Highlights.”

Conflict of Interest Guidelines for Directors / Directors’ Code of Conduct. The Company has adopted a written Conflict of Interest Guidelines for Directors / Directors’ Code of Conduct that applies to directors of the Company. A copy of the Conflict of Interest Guidelines for Directors / Directors’ Code of Conduct is posted on the Company’s website at “www.take2games.com” and can be accessed by clicking on “Corporate,” then “Corporate Governance,” then “Highlights.”

Board Committees

The Board of Directors has three standing committees entirely comprised of independent directors: a Compensation Committee, a Corporate Governance Committee and an Audit Committee. The Board of Directors also has a standing Executive Committee, currently comprised of Messrs. Dornemann (Chair), Sheresky and Zelnick. These four committees are governed by written charters. The charters and the Company’s Code of

 

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Business Conduct and Ethics are posted on the Company’s website at www.take2games.com and can be accessed by clicking on “Corporate,” then “Corporate Governance,” then “Highlights.”

 

      Compensation
Committee
  

Corporate
Governance

Committee

  

Audit

Committee

   Executive
Committee

Robert A. Bowman

             Chair     

Michael Dornemann

            Chair

J Moses

      Chair          

Michael Sheresky

   Chair           

LaVerne Srinivasan

                 

Susan Tolson

                 

Strauss Zelnick

                 

Number of Meetings

in Fiscal 2017

   5    5    5    3

Compensation Committee members are Messrs. Sheresky (Chair), Dornemann and Moses, each of whom is an independent director under NASDAQ’s Rule 5605, a “non-employee director” as defined under the SEC rules and an “outside director” as defined under Section 162(m) of the Internal Revenue Code (the “Code”). The Compensation Committee, among other roles, reviews the compensation policies and procedures of the Company, evaluates and approves executive officer compensation, and makes recommendations to the Board of Directors regarding executive compensation. During the fiscal year ending March 31, 2017 (“fiscal 2017”), the Compensation Committee held five (5) meetings.

Corporate Governance Committee members are Messrs. Moses (Chair), Dornemann and Sheresky and Ms. Srinivasan. This committee is responsible, among other things, for creating and maintaining overall corporate governance policies for the Company and identifying, screening and recruiting director candidates for the Board of Directors. The Corporate Governance Committee held five (5) meetings during fiscal 2017.

The Corporate Governance Committee will consider nominees recommended by shareholders, provided that the recommendation contains sufficient information for the committee to assess the suitability of the candidate and such nomination complies with the Company’s bylaws. Candidates recommended by shareholders that comply with these procedures will receive the same consideration that candidates recommended by the committee receive.

When selecting directors, the Board of Directors reviews and considers many factors, including experience, business understanding, achievement, available time, diversity, skills and independence. It also will consider ethical standards, integrity and any conflict of interest. It considers recommendations primarily from shareholders of the Company and from members of the Board of Directors and management. The Corporate Governance Committee conducts interviews with candidates who meet the criteria of the Board of Directors, and has full discretion in considering its nominations to the Board of Directors. The Board of Directors adopted Corporate Governance Guidelines, which include criteria to assess the suitability of candidates for the Board of Directors. These Corporate Governance Guidelines are posted on the Company’s website at “www.take2games.com” and can be accessed by clicking on “Corporate,” then “Corporate Governance,” then “Highlights.”

Audit Committee members are Messrs. Bowman (Chair) and Dornemann and Ms. Tolson. The Audit Committee oversees the accounting and financial reporting processes of the Company and audits of the financial statements of the Company. In addition, the Audit Committee assists the Board of Directors in its review and oversight of the Company’s key investment objectives, strategies and policies. The Board of Directors has determined that Mr. Bowman and Ms. Tolson each qualify as an “audit committee financial expert” under federal securities laws. The Audit Committee held five (5) meetings during fiscal 2017.

 

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Special Committees. From time to time the Board of Directors may form a special committee for a particular purpose. Most recently, in the fiscal year ended March 31, 2014 (“fiscal 2014”), the Board of Directors appointed a special committee, comprised entirely of independent directors, to lead the negotiation of a new management agreement with ZelnickMedia, which is described under “Certain Relationships and Related Transactions—Management Agreement.”

Other Executive Officers

Each of the following executive officers, who are not also directors, will serve in such capacity until the next Annual Meeting of Shareholders or until earlier termination or removal from office.

Karl Slatoff, age 47, became President of the Company in May 2013 and served as Chief Operating Officer of the Company from October 2010 through April 2013. Mr. Slatoff serves as President of the Company pursuant to the terms of the 2014 Management Agreement between the Company and ZelnickMedia. See “Certain Relationships and Related Transactions—Management Agreement.” From February 2008 to October 2010, Mr. Slatoff served as an Executive Vice President of the Company. Mr. Slatoff also is a partner in ZelnickMedia and serves as a director of Cannella Response Television, LLC.

Prior to joining ZelnickMedia in 2001, Mr. Slatoff served as Vice President, New Media for BMG Entertainment, where he was responsible for guiding BMG’s online digital strategies, including the development of commercial digital distribution initiatives and new business models for the sale and syndication of online content. From 1994 to 1996, Mr. Slatoff worked in strategic planning at the Walt Disney Company, where he focused on the consumer products, studio and broadcast divisions, as well as several initiatives in the educational, publishing and new media sectors. From 1992 to 1994, Mr. Slatoff worked in the corporate finance and mergers and acquisitions units at Lehman Brothers where he focused on the consumer products and retail/merchandising industries.

Lainie Goldstein, age 49, was appointed Chief Financial Officer of the Company in June 2007, and is responsible for overseeing Finance, Investor Relations and Corporate Communications. Ms. Goldstein previously served as the Company’s Senior Vice President of Finance from November 2003.

Ms. Goldstein is a CPA with over 20 years of financial and business experience in the software, entertainment, retail and apparel industries, with proven success in managing the finance function of publicly traded companies. Prior to joining the Company, Ms. Goldstein held a number of positions of increasing responsibility with Nautica Enterprises, Inc., most recently serving as Vice President, Finance and Business Development. Earlier in her career, she held positions in the audit and reorganization departments at Grant Thornton LLP.

Daniel Emerson, age 45, became Executive Vice President and General Counsel of the Company in October 2014. Mr. Emerson joined the Company as a Vice President in June 2005 and served in various capacities of increasing responsibility within the legal department, including Senior Vice President, Corporate Secretary and Deputy General Counsel. In addition to serving as the General Counsel of the Company, Mr. Emerson oversees administrative management of Internal Audit on behalf of the Audit Committee.

Prior to joining the Company, Mr. Emerson was a partner in the New York office of the law firm Blank Rome LLP, where he represented public and private companies in mergers & acquisitions, securities law, financings and general corporate matters.

 

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NON-BINDING ADVISORY VOTE TO APPROVE THE

COMPENSATION OF THE COMPANY’S

NAMED EXECUTIVE OFFICERS

(Proposal 2)

In accordance with the SEC’s proxy rules, we are seeking approval, on a non-binding advisory basis, of the compensation of the Company’s “named executive officers” listed in the Summary Compensation Table (the “NEOs”) for fiscal year 2017, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and the related narrative disclosures. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. This vote is commonly known as a “say on pay” advisory vote. The Board of Directors has adopted a policy providing for annual “say on pay” advisory votes.

The compensation of our NEOs is described in detail in the “Compensation Discussion and Analysis” section of this Proxy Statement beginning on page 21, which we encourage you to read for additional details on our executive compensation programs and compensation of our NEOs for fiscal 2017.

Our executive compensation programs are based on three core principles that are designed to motivate our NEOs to achieve annual financial and strategic objectives to enhance the profitability of the Company and create long-term shareholder value. The fiscal 2017 compensation of our NEOs reflected these core principles:

 

   

A significant portion of our NEOs’ compensation was based on the financial performance of the Company and therefore “at risk”;

 

   

The majority of each NEO’s total compensation was provided in the form of long-term equity, a significant portion of which was subject to total shareholder return (“TSR”) performance metrics, to further align the interest of our NEOs and shareholders; and

 

   

The target total direct compensation package for each NEO was consistent with market practices for executive talent and each NEO’s individual experience, responsibilities and performance.

We believe that our compensation programs and policies for fiscal 2017 were consistent with our core compensation principles, provided an effective incentive for the achievement of positive results, aligned with shareholders’ interests, supported by strong compensation governance practices and worthy of continued shareholder support. Accordingly, we ask for our shareholders to indicate their support for the compensation paid to our NEOs by voting “FOR” the following non-binding resolution at the Annual Meeting:

“RESOLVED, that the Company’s shareholders approve the compensation of the named executive officers for fiscal year 2017, including the Compensation Discussion and Analysis, the compensation tables, and the related narrative disclosures as included in this Proxy Statement.”

Because your vote is advisory, the result will not be binding upon the Company. Although not binding, the Board of Directors values the opinions of our shareholders and will carefully review and consider the outcome of the vote, along with other relevant factors, in evaluating its compensation program for our NEOs.

THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE FOREGOING RESOLUTION ON THE COMPENSATION OF THE NEOS IS IN THE BEST INTERESTS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF THE COMPANY’S NEOS, AS STATED IN THE ABOVE NON-BINDING RESOLUTION.

 

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NON-BINDING ADVISORY VOTE REGARDING THE FREQUENCY OF

HOLDING FUTURE ADVISORY VOTES TO APPROVE THE COMPENSATION OF

THE COMPANY’S NAMED EXECUTIVE OFFICERS

(Proposal 3)

In accordance with the SEC’s proxy rules, shareholders are being asked to vote on a non-binding advisory basis, on the frequency with which the Company should hold future advisory votes on the compensation of the Company’s NEOs. Shareholders may vote to hold an advisory vote on NEO compensation every year, every two years, or every three years, or they may abstain from this vote.

We last asked our shareholders to indicate the frequency with which they prefer that we hold a “say on pay” vote at our 2011 Annual Meeting. Consistent with our recommendations and the results of the advisory vote on the frequency of the shareholder vote on compensation for our NEOs at our 2011 Annual Meeting, the Company has presented a proposal for an annual advisory vote on compensation for our NEOs to shareholders.

The Board of Directors believes that an annual advisory vote on executive compensation will give the Company’s shareholders the best opportunity to provide the Company with direct input each year on the Company’s compensation philosophy, policies and practices as disclosed in the proxy statement. Therefore, the Board of Directors recommends that shareholders vote to hold future advisory votes on the compensation of the Company’s NEOs every year. Although the shareholder vote on the frequency of advisory votes on the compensation of our NEOs is not binding on the Board of Directors or the Company, the Board of Directors will review the results of the vote and take them into consideration in determining how frequently to hold future advisory votes on the compensation of our NEOs. The option that receives the greatest number of votes cast by our shareholders will be considered when determining the frequency for holding future advisory votes on compensation for our NEOs.

THE BOARD OF DIRECTORS BELIEVES ANNUAL ADVISORY VOTES ON THE COMPENSATION OF THE NEOS ARE IN THE BEST INTERESTS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR CONDUCTING THE FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION ANNUALLY.

 

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COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Discussion and Analysis section describes the material elements of our executive compensation program for fiscal 2017, including the named executive officers (“NEOs”) as identified in the Summary Compensation Table and listed below:

 

Executive    Title

Strauss Zelnick

   Executive Chairman and Chief Executive Officer

Karl Slatoff

   President

Lainie Goldstein

   Chief Financial Officer

Daniel Emerson

   Executive Vice President and General Counsel

Messrs. Zelnick and Slatoff serve in their executive positions pursuant to a management agreement with ZelnickMedia, discussed below.

EXECUTIVE SUMMARY

Take-Two is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. Take-Two develops games and operates primarily through two wholly-owned labels—Rockstar Games and 2K.

 

LOGO  

Top Sellers Include:

 

     Grand Theft Auto

 

    Max Payne

 

     Midnight Club

 

    Red Dead

      LOGO  

Top Sellers Include:

 

     NBA 2K

 

    BioShock

 

     Borderlands

 

    Mafia

 

     Sid Meier’s Civilization

 

    WWE 2K

 

We generate financial returns for our shareholders by pursuing a strategy of capitalizing on the widespread popularity of interactive entertainment and by focusing on publishing a select number of high quality titles for which we can create sequels and build successful franchises. We also seek to complement our core release schedule with digitally delivered offerings designed to drive recurrent consumer spending, including add-on content, virtual currency and microtransactions.

Our management team and creative talent in our wholly-owned labels, Rockstar Games and 2K, are essential to building and maintaining the strongest portfolio of intellectual property in the industry. Our compensation program is designed to reflect the importance of our creative talent, including through the use of equity awards to establish strong links between our creative teams and long-term value creation for shareholders.

Select Fiscal 2017 Performance Highlights

Take-Two delivered strong financial results in fiscal 2017 and continued to execute successfully on our strategy of developing a select number of high-quality titles that make us a leader in our industry.

 

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LOGO

 

  Business Highlights

 

   

Grand Theft Auto V continued its positive momentum and is one of the most critically-acclaimed and commercially successful video games, with sell-in to date of more than 80 million units across PlayStation 4, PlayStation 3, Xbox One, Xbox 360 and PC;

 

 

   

The Company expanded its relationship with the NBA through the creation of the NBA 2K eSports League, a new, professional competitive gaming league;

 

 

   

The Company broadened the skills of its Board of Directors through the appointment of LaVerne Srinivasan to the Board and to its Corporate Governance Committee;

 

 

   

The Company acquired privately-held Social Point S.L. Founded in 2008 and headquartered in Barcelona, Spain, Social Point is a highly-successful free-to-play mobile game developer that focuses on delivering high-quality, deeply-engaging entertainment experiences;

 

 

   

NBA 2K17 continued to build on the Company’s industry-leading basketball series’ track record of annual growth. The title is the top-rated sports game of the current console generation, and is poised to become Take-Two’s highest-selling sports title ever, with sell-in to date of nearly 8 million units;

 

 

   

Successfully launched Mafia III, which was praised by the media and consumers alike for setting new creative benchmarks through its deep storytelling, diverse characters and authentic period setting. To date, the title has sold in more than 5 million units;

 

 

   

Successfully launched WWE 2K17, which continued to build on the success of the Company’s popular sports entertainment series, and has sold-in approximately 3 million units to date;

 

 

   

Successfully launched Sid Meier’s Civilization VI, which received stellar reviews and is the fastest-selling title in the history of the series, with sell-in to date of nearly 2 million units.

 

 

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With our strong financial performance in fiscal 2017, and with the strategic steps management has taken over the past several years to strengthen our balance sheet, grow and diversify the Company’s franchise portfolio, and reduce costs, we are well-positioned to achieve strong financial results each year for the foreseeable future.

 

LOGO

Shareholder Outreach

As part of our regular governance practices, the Compensation Committee evaluates our compensation programs in light of market conditions, shareholder views, and governance considerations, and makes changes as appropriate for our business. We value the feedback of our shareholders, as expressed through votes and direct communications, and annually submit our executive compensation programs to a non-binding shareholder advisory “say-on-pay” vote. At our Annual Meeting held in September 2016, our executive compensation program was approved by shareholders representing 99.5% of the votes cast on the proposal. As a result of this strong signal of support from our shareholders for our compensation program and policies, we did not make any changes to our executive compensation program in fiscal 2017.

To enhance our understanding of our shareholder’s perspectives, we maintain a regular shareholder outreach program. In the months leading up to the filing of this Proxy Statement, we sought discussions with holders of more than 55% of our shares and had discussions with a number of our top holders (percentage based on the Company’s investors’ most recent filings). These discussions included the Chair of the Compensation Committee and/or members of Take-Two’s senior management team. Throughout these discussions, we sought shareholder feedback on a wide range of issues, including the management agreement with ZelnickMedia, our executive compensation program, our Compensation Discussion and Analysis disclosure, and our use of equity as an incentive tool. Feedback from shareholders was generally positive on compensation and our enhanced disclosure in the 2016 proxy statement, with some of our shareholders inquiring about the rationale for the performance metrics utilized in our incentive plans, as well as how the Board of Directors thinks about using equity as a key recruiting and retention tool. We also discussed corporate governance matters, including our approach to Board composition, refreshment and evaluation practices.

In response to shareholder feedback, as well as in consideration of market practices and our overarching compensation philosophy, the Compensation Committee made several changes in the early part of our fiscal year

 

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ended March 31, 2015 (“fiscal 2015”) to our executive compensation program, which shareholder feedback continues to support. These changes included:

 

   

Eliminated the Adjusted EBITDA “catch-up” metric in the performance-based awards. Previously, performance-based equity vested on either achievement of share-price appreciation goals, or Adjusted EBITDA goals if share price appreciation goals were not met. This change eliminated the secondary performance opportunity; awards only vest based on share-price appreciation.

 

 

   

Adopted a relative TSR metric in the long-term incentive plan. The relative TSR metric replaces the previous absolute (i.e., Company specific) share price appreciation metric in our performance-based awards. Take-Two’s TSR performance are now measured against the TSR performance of the companies comprising the NASDAQ Composite Index.

 

The Committee also negotiated a number of changes in the ZelnickMedia Management Agreement in fiscal 2014 as a result of shareholder feedback, as detailed under “ZelnickMedia Management Agreement” below.

ZelnickMedia Management Agreement

Executive Chairman and CEO Strauss Zelnick and President Karl Slatoff serve as executives of the Company under a management services agreement with ZelnickMedia, a partnership of private equity investors that focuses on the media and communications industry, of which they are partners. The Company first entered into a management services agreement with ZelnickMedia in 2007, and a new and amended management agreement was put in place in May 2011 (the “2011 Management Agreement”), which was originally anticipated to govern through May 31, 2015. On March 10, 2014, the Company and ZelnickMedia entered into a new management agreement (the “2014 Management Agreement”) that superseded the 2011 Management Agreement, under which ZelnickMedia will continue to provide management, consulting and executive level services to the Company through March 31, 2019.

The 2014 Management Agreement included several changes to address feedback the Board of Directors received from shareholders. These changes included:

 

   

Increased disclosure. Enhanced disclosure regarding the 2014 Management Agreement to provide greater transparency, including the establishment of individual fee caps paid by ZelnickMedia to Messrs. Zelnick and Slatoff for their services to Take-Two.

 

 

   

Transitioned from a front-loaded equity grant to an annual grant structure. Previous ZelnickMedia management agreements included an up-front equity grant at the commencement of the agreement. The 2014 Management Agreement provided a smaller equity grant at the time of signing on April 1, 2014 and provides the Compensation Committee the ability to grant additional annual equity awards in subsequent years, although the Compensation Committee is under no obligation to do so. The Compensation Committee elected to make additional annual equity awards to ZelnickMedia on May 20, 2015, May 20, 2016 and May 25, 2017, as further described below.

 

 

   

Eliminated “catch-up” provision. Performance-based equity grant will be based solely on relative TSR and IP performance and will not include any TSR “catch-up” opportunity.

 

 

   

Lengthened the performance measurement period of performance-based equity. The relative TSR performance measurement period was increased from a one-year period to a two-year period.

 

 

   

Elimination of automatic annual fee increases. The annual fee provided in the 2014 Management Agreement will remain constant for the duration of the agreement.

 

 

   

New IP metric focuses attention on key strategic goals. Performance shares vest based on TSR and performance of (i) new interactive entertainment products and (ii) our major and generally most profitable products.

 

 

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The Compensation Committee believes the Company’s management structure and relationship with ZelnickMedia has been critical to building the Company’s franchises, improving profitability and strengthening the balance sheet, and providing disciplined management. In 2007, the Company faced multiple investigations and significant litigation including shareholder lawsuits, as well as financial challenges, including limited cash (the Company ended fiscal 2007 with only $78 million in cash) and significant operating losses. In March 2007, shareholders then holding approximately 46% of our outstanding shares of common stock negotiated the management agreement with ZelnickMedia on our behalf and, after their election at the 2007 annual meeting of shareholders, the Board of Directors of the Company approved the execution of the management agreement by the Company.

Since that time, the Company has been transformed from single franchise dependency into a diverse, financially strong, global interactive entertainment enterprise. The Company has launched 9 new brands since 2007 and has 11 franchises with individual titles that have sold-in to retail more than 5 million units each. The Company has also expanded geographically, in digital distribution and with new business models.

As part of its regular governance practices, the Board of Directors continuously reviews the relationship with ZelnickMedia to ensure that it remains the right management structure for the Company and our shareholders. At least annually, the Compensation Committee conducts interviews on a confidential basis with all direct reports to Messrs. Zelnick and Slatoff, and other members of management, to seek feedback on the performance of the ZelnickMedia executives and to evaluate the effectiveness of the ZelnickMedia relationship broadly. The Compensation Committee’s feedback from these 360-degree interviews is then discussed at executive sessions of independent board members. This feedback was taken into consideration during the most recent ZelnickMedia management agreement negotiation process. The Lead Independent Director also engages routinely with members of the executive team, including non-ZelnickMedia members of management, on an approximately bi-weekly basis.

NEO Compensation Structure and Pay-for-Performance Principles

The Compensation Committee of Take-Two has developed compensation programs and arrangements designed to place a significant portion of our executives’ compensation at risk based on Company performance. Equity awards are a key element in the compensation of our executives, as well as creative talent throughout the organization. The Compensation Committee believes equity awards create strong linkage between our executives and the long-term performance of our Company as well as the interests of our shareholders. Refer to Annex A herein for a reconciliation of GAAP net income to the Adjusted EBITDA measure discussed below.

Compensation of Mr. Zelnick and Mr. Slatoff

Mr. Zelnick and Mr. Slatoff serve in their executive roles at Take-Two under the Management Agreement with ZelnickMedia. Mr. Zelnick and Mr. Slatoff are compensated directly by ZelnickMedia and not Take-Two (except for $1 received annually by each to provide them the opportunity to receive certain health and other plan benefits). To provide greater disclosure and fuller understanding of the compensation received by Messrs. Zelnick and Slatoff individually, the 2014 Management Agreement includes a requirement that no more than 60 percent of the compensation the Company pays to ZelnickMedia shall be received by or conveyed to Mr. Zelnick (or other such employee of ZelnickMedia that serves as Executive Chairman and Chief Executive Officer of the Company), and no more than 40 percent of the compensation the Company pays to ZelnickMedia shall be received by or conveyed to Mr. Slatoff (or other such employee of ZelnickMedia that serves as President of the Company). See “Certain Relationships and Related Transactions—Management Agreement” for additional detail.

The 2014 Management Agreement emphasizes performance-based, at-risk compensation and equity with greater than one-year vesting, to ensure it is closely aligned with the compensation of other Take-Two executives, the performance of the Company and the interests of our shareholders. Performance measures are designed to be challenging but achievable.

 

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Our Compensation Committee establishes the annual cash incentive fee based solely on performance against a budgeted Adjusted EBITDA (a non-GAAP measure calculated by taking GAAP net income recorded for the Company, adding back or subtracting the net effect from deferral in net revenues and related costs of goods sold, impact of business reorganization, one-time gains or losses on long-term investments, and adding back stock based compensation, interest, depreciation, amortization and tax expenses) goal set at the beginning of each fiscal year. There is no discretionary element to this goal, and the Compensation Committee uses the same Adjusted EBITDA goal in our internal executive pay program. We believe Adjusted EBITDA focuses our executives on operating growth and profitability. The 2014 Management Agreement provides for an absolute cap on the annual incentive opportunity. Adjusted EBITDA goals were met in each of the last five fiscal years.

Our Compensation Committee establishes the long-term incentive opportunity to motivate sustained performance over a multi-year period and to strengthen the alignment with long-term shareholder value creation. To that end, our long-term incentive includes performance-based shares that vest based on TSR performance, “New IP” performance and “Major IP” performance as indicated in the table below. Relative TSR performance aligns the interests of ZelnickMedia and our executives with our shareholders generally. We seek to incentivize strong sales performance of “New IP” (new interactive entertainment products) to foster creation of additional successful franchises. The “Major IP” category is broader, including existing interactive entertainment products and products derived from existing products, as well as new products, as we seek to build on our major, most profitable franchises. In fiscal 2017, the maximum relative TSR and Major IP performance goals were met, but the New IP performance goal was not achieved.

While we believe the short-term and long-term incentives are balanced to help incentivize optimal performance, we also note that there is no duplication in use of performance metrics between short-term and long-term programs.

The following table summarizes the compensation components of the 2014 Management Agreement:

 

Compensation

Component

 

% Linked to

Performance

  Delivery Form   Performance Link

Annual Base Fee

  N/A   Cash   N/A
     

Annual Incentive

  100%   Cash   Adjusted EBITDA(1)
     

Long-Term Incentive

(Equity Grants)

 

55% at target

 

71% at maximum

  Time-Based Awards(2)   N/A
    Performance-Based Awards  

75%: Relative TSR Performance(3)

 

12.5%: New IP Performance(4)

 

12.5% Major IP Performance(5)

 

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(1) The annual incentive is awarded based solely on the financial performance metric; there is no individual performance element. The table below describes the payout schedule for the annual incentive opportunity based on achievement of Adjusted EBITDA (with payouts being prorated on a straight-line basis between the amounts listed below based on the actual percentage of Adjusted EBITDA target obtained):

 

Percentage of Adjusted

EBITDA Target Obtained

   Amount of
Annual Bonus
 

80% or less

     $0  

90%

   $ 1,188,000  

100%

   $ 2,376,000  

110%

   $ 2,885,143  

120%

   $ 3,394,286  

130%

   $ 3,846,857  

140%

   $ 4,299,429  

150%

   $ 4,752,000  

Above 150%

   $ 4,752,000  

 

(2) Time-based awards will vest on April 1, 2018 for the grant made on May 20, 2016 and will vest on April 4, 2019 for the grant made on May 25, 2017, in each case provided that the 2014 Management Agreement has not been terminated prior to such date.
(3) Relative TSR performance-based vesting is a function of the Company’s total shareholder return during the performance period, as compared to the total shareholder return generated by the Company’s peer group, which consists of the companies that comprise the NASDAQ Composite Index on the first day of the performance period. We use the NASDAQ Composite Index for this purpose, rather than a narrow peer group, given the small size of our public company peer group and the stock price volatility of those peers. The table below describes the vesting schedule for the performance-based equity based on achievement of relative TSR over a two-year performance period:

 

TSR Percentile Rank

   TSR Vesting Percentage

Less than 40th Percentile

   0% of target shares

40th Percentile

   50% of target shares

50th Percentile

   100% of target shares

75th Percentile

   200% of target shares

 

(4) New IP performance-based vesting is a function of the revenue generated by sales performance or the number of units “sold-in” (sell-in performance) with respect to certain releases of New IP during the performance period. New IP consists of new interactive entertainment products that are commercially released on or after April 1, 2014. This metric underscores and promotes our long-term strategy of creating additional strong franchises. Whether vesting is based on sales performance or sell-in performance depends on whether the New IP that is released constitutes a regular price, reduced price, or other type of interactive entertainment product. In any case, the vesting percentage applicable to the New IP performance-based shares will be determined by comparing the Company’s performance against the pre-determined performance criteria set out in the Restricted Unit Agreements (as defined below under “Certain Relationships and Related Transactions—Management Agreement”).
(5) Major IP performance-based vesting is a function of the sales performance or the sell-in performance with respect to certain releases of Major IP during the performance period. Major IP consists of New IP, existing interactive entertainment products that were commercially released prior to April 1, 2014, and products that are derived from such existing products, in any case that are released on or after April 1, 2014. This metric underscores and promotes our long-term strategy of building game franchises through game sequels. Whether vesting is based on sales performance or sell-in performance depends on whether the Major IP that is released constitutes a regular price, reduced price, or other type of interactive entertainment product. In any case, the vesting percentage applicable to the Major IP performance-based shares will be determined by comparing the Company’s performance against the pre-determined performance criteria set out in the Restricted Unit Agreements.

 

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Compensation of Other Named Executive Officers

Our other NEOs in fiscal 2017, who were Ms. Goldstein and Mr. Emerson, were compensated through three primary components: base salary, annual incentives and long-term incentives. The majority of Ms. Goldstein’s and Mr. Emerson’s compensation was performance-based and weighted toward long-term incentives. In early fiscal 2015, the Compensation Committee made several enhancements to the compensation structure of NEOs based on shareholder feedback. These changes are detailed in the section above, “Shareholder Outreach and Compensation Program Changes.”

The compensation structure for NEOs in fiscal 2017 was as follows:

 

Compensation

Component

  

% Linked to

Performance

   Delivery Form    Performance Link

Annual Base Salary

   N/A    Cash    N/A
       

Annual Incentive

   100%    Cash    Adjusted EBITDA
       

Long-Term Incentive (RSUs)

  

66.7% at target

 

80% at maximum

   Time-Based Awards(1)    N/A
      Performance-Based

Awards(2)

   Relative TSR
(1) Time-based awards will vest, subject to continuing employment, in three equal annual installments commencing in the year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant.
(2) Performance-based awards that are earned (based on relative TSR performance over a two-year performance period, determined in the same manner as under the 2014 Management Agreement, as described above) will vest in two equal annual installments commencing in the second year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant. For example, the performance-based portion of the restricted stock units (“RSUs”) granted to Ms. Goldstein on June 1, 2016 will vest, if at all, 50% on June 1, 2018 and 50% on June 1, 2019.

Structural Pay and Performance Alignment for All NEOs

Our NEOs receive a mix of compensation that is appropriately weighted towards at-risk pay in the form of annual incentives and long-term incentives. The Compensation Committee believes this creates strong alignment with the Company’s stated compensation philosophy of providing compensation commensurate with individual and corporate performance. The majority of incentive compensation is also delivered in the form of equity, which provides strong alignment between executives’ incentives and the interests of our shareholders. ZelnickMedia’s compensation under the 2014 Management Agreement is also weighted towards at-risk compensation, as ZelnickMedia’s compensation consists of: (1) RSUs, of which 55% vest subject to the satisfaction of performance criteria, and (2) cash compensation, with 60% of the maximum aggregate cash compensation in the form of an annual incentive based upon the Company’s performance.

 

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The following chart illustrates the compensation mix, based on maximum compensation opportunities, under the 2014 Management Agreement and for current NEOs.

 

 

LOGO

Fiscal 2017 Variable Compensation Targets and Performance Achievement

Annual and long-term incentives for ZelnickMedia and our NEOs (other than Messrs. Zelnick and Slatoff) are based on measurable financial and share price performance metrics. The following tables summarize the Company-wide targets and actual results for both ZelnickMedia and NEO performance-based cash compensation paid and equity compensation granted in fiscal 2017.

ZelnickMedia’s 2017 Variable Compensation Targets and resulting Fiscal 2017 Performance Achievements:

 

Incentive Component  

Financial
Performance

Metrics

  2017 Performance
Threshold
 

2017 Performance

Target

  2017 Performance
Maximum
 

2017 Actual

Performance

Annual Incentive

  Adjusted
EBITDA
  $167.6 million   $209.5 million   $314.3 million   $336.1 million
           

Performance-

Based RSUs

 

(Fiscal 2017

Grant)

  Relative TSR   40th Percentile   50th Percentile   75th Percentile   N/A: Relative
TSR is measured
over the approximate two-year period ending March 30, 2018

Other NEOs’ 2017 Variable Compensation Targets and resulting Fiscal 2017 Performance Achievements:

 

Incentive Component  

Financial
Performance

Metrics

  2017 Performance
Threshold
 

2017 Performance

Target

  2017 Performance
Maximum
 

2017 Actual

Performance

Annual Incentive

  Adjusted EBITDA   $167.6 million   $209.5 million   $314.3 million   $336.1 million
           

Performance-

Based RSUs

  Relative TSR   40th Percentile   50th Percentile   75th Percentile   N/A: Relative TSR is measured over two-year period ending March 31, 2018

 

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Highlights of Compensation Governance Practices

Take-Two maintains strong compensation governance practices that support our pay-for-performance principles and align management incentives with the interests of our shareholders. We have adopted a number of “best practices” with respect to executive compensation, including:

 

  Clawback policy applicable to NEOs, including those under the 2014 Management Agreement with ZelnickMedia

 

  Incentive caps on annual bonuses to NEOs

 

  Strong anti-hedging and anti-pledging policies

 

  Double-trigger acceleration of vesting on a change in control for grants made after July 2014

 

  Meaningful stock ownership requirements (5x for CEO/Chairman and President; 3x for other NEOs; and 5x annual cash retainer for directors)

 

  Equity incentive plan provisions that prohibit re-pricing of stock options without shareholder approval

 

  Limited perquisites

 

  No tax gross ups in respect of any excise taxes on parachute payments

 

  Annual compensation risk assessment for employee plans

 

  Retention of independent compensation consultants by the Compensation Committee

 

  Balanced compensation approach between short- and long-term incentive opportunities

 

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DETAILED DISCUSSION AND ANALYSIS

The main body of this Compensation Discussion and Analysis provides details on the principles and objectives of our executive compensation program and the Compensation Committee’s key fiscal 2017 compensation-related decisions. This section is organized into the following categories:

 

I. Objectives and Philosophy of Executive Compensation

 

II. Compensation to Executive Chairman and CEO and President

 

III. Other NEO Compensation

 

IV. Competitive Market Positioning

 

V. Principal Elements of Executive Compensation

 

VI. Operation of the Compensation Committee

 

VII. Compensation Governance Practices

I. Objectives and Philosophy of Executive Compensation

Our executive compensation program is designed to drive Take-Two’s mission of producing strong financial results for its shareholders by pursuing a strategy of capitalizing on the widespread popularity of interactive entertainment. We focus on publishing a select number of high quality titles for which we can create sequels and build successful franchises. To achieve this, it is critical that we have the resources available to attract and retain executives who are committed to creativity, efficiency and innovation.

Accordingly, the Compensation Committee has established a compensation plan for our NEOs that is designed to:

 

  Enhance the profitability of the Company and drive shareholder value creation;

 

  Link a significant portion of compensation to the Company’s long-term financial and stock price performance, thereby creating long-term shareholder value;

 

  Attract, motivate, and retain highly qualified individuals;

 

  Reward each NEO’s contribution to the Company’s profitability and growth; individual initiative, leadership and achievements; and management of risks; and

 

  Motivate NEOs to build a career at the Company and to contribute to our future success.

The Company seeks to provide competitive compensation that is commensurate with performance and integrates individual efforts, Company and business unit results, and financial rewards. Accordingly, a significant portion of the total compensation paid to NEOs is placed at risk through annual and long-term incentives, which combination of incentives is designed to align the performance of NEOs and the Company’s annual operating objectives and earnings performance with long-term shareholder value creation.

Our compensation program’s design, in particular the use of equity awards as a key incentive element, establishes strong links between our creative teams and long-term value creation for shareholders. Our compensation program reflects the importance of creative talent to our business and enables us to retain and incentivize these groups. As a result of the importance we place on equity incentives, Take-Two may have higher equity usage for share plans than some of our peers. The Board of Directors periodically authorizes share repurchases when such actions are in the best interests of the shareholders; these repurchases directly reduce the number of the Company’s outstanding shares.

 

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II. Compensation to Executive Chairman and CEO and President

Take-Two has had a long-standing management relationship with ZelnickMedia, under which ZelnickMedia provides executive management and other services to Take-Two. This relationship was first established in 2007 and has been maintained, with several amendments and restatements, since that time. Our Executive Chairman and CEO, Strauss Zelnick, and our President, Karl Slatoff, serve in their current roles pursuant to the 2014 Management Agreement with ZelnickMedia. Mr. Zelnick has been our Executive Chairman since 2008 and our CEO since 2011. Mr. Slatoff has been our President since May 2013 and previously served in other executive roles at the Company.

On March 10, 2014, the Company and ZelnickMedia entered into the 2014 Management Agreement, effective April 1, 2014 which superseded the prior 2011 Management Agreement. The 2014 Management Agreement emphasizes performance-based, at-risk compensation and equity with greater than one-year vesting, to ensure it is closely aligned with the compensation of other Take-Two executives, the performance of the Company and the interests of our shareholders. Fees and incentives paid to ZelnickMedia during fiscal 2017 are detailed below under “Fiscal 2017 Fees and Incentives to ZelnickMedia.”

The target compensation opportunity for ZelnickMedia under the 2014 Management Agreement considered the Company’s need for a senior leadership team that can provide financial and technology acumen as well as management of creative talent. This is a unique combination of skills that creates a limited pool of candidates, and has resulted in the Board of Directors’ decision to provide a competitive compensation opportunity for ZelnickMedia. However, this compensation opportunity is contingent on achieving superior performance.

Services Provided by ZelnickMedia

The provisions of the 2014 Management Agreement establish the payments and benefits to which ZelnickMedia is entitled as consideration for providing certain services. These services include:

 

   

Executive management and leadership delivered through the services of Executive Chairman and CEO Strauss Zelnick and President Karl Slatoff.

 

 

   

Resources of other ZelnickMedia partners that may provide services and advice to the Company on an as-needed basis.

 

 

   

First access to certain deal opportunities as they are identified by ZelnickMedia.

 

 

   

Elevated market positioning due to the industry relationships of ZelnickMedia.

 

The Board of Directors and Compensation Committee believe that the services provided by ZelnickMedia, inclusive of the services of Mr. Zelnick and Mr. Slatoff, are a competitive advantage to Take-Two. The Board of Directors and the Compensation Committee regularly evaluate the relationship with ZelnickMedia to ensure it is still the appropriate management structure for the Company. To facilitate this review:

 

   

At least annually, the Compensation Committee interviews a broad spectrum of Company management to seek feedback on the performance of Mr. Zelnick and Mr. Slatoff and the relationship with ZelnickMedia, generally.

 

 

   

Feedback from Company management is discussed in executive sessions of the Board of Directors.

 

 

   

The Lead Independent Director meets with members of the senior management team on an approximately bi-weekly basis to discuss the business strategy of the Company in greater detail and provide additional guidance to such members of management.

 

 

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Fiscal 2017 Fees and Incentives to ZelnickMedia

During fiscal 2017, in accordance with the 2014 Management Agreement, ZelnickMedia received an annual management fee, had the opportunity to receive an annual performance-based incentive, the payment of which is linked solely to an objective company performance measure, and received a long-term incentive equity grant in a combination of time-based vesting RSUs and performance-based vesting RSUs.

Compensation to ZelnickMedia in fiscal 2017 under the 2014 Management Agreement is summarized below:

 

Annual

Management Fee

   Annual Incentive
Compensation
  

Performance-

Based RSUs

   Time-Based RSUs    Total Compensation

$2,970,000(1)

   $4,752,000(2)    $4,750,000(3)    $3,850,000    $16,322,000

 

(1) Fixed annual fee per 2014 Management Agreement.
(2) Adjusted EBITDA achieved was greater than 150% of budgeted target. As a result, ZelnickMedia earned the maximum annual incentive.
(3) Grant made on May 20, 2016 and amount assumes that the target TSR performance and sales performance in connection with releases of New IP and Major IP vesting criteria for the performance-based RSUs are met, resulting in the vesting of 132,692 RSUs. If the maximum TSR performance and sales performance in connection with releases of New IP and Major IP vesting criteria for the performance-based RSUs are met, 265,384 RSUs would vest.

2014 ZelnickMedia Management Agreement

As previously noted, on March 10, 2014, the Company and ZelnickMedia entered into the 2014 Management Agreement, effective April 1, 2014, which superseded the prior 2011 Management Agreement. For a full description of the 2014 Management Agreement, refer to “Certain Relationships and Related Transactions—Management Agreement.”

Compensation of Mr. Zelnick and Mr. Slatoff

Under the 2014 Management Agreement, Mr. Zelnick may not receive more than 60% of the aggregate compensation paid to ZelnickMedia and Mr. Slatoff may not receive more than 40% of the aggregate compensation paid to ZelnickMedia. ZelnickMedia and the Compensation Committee incorporated these individual caps into the 2014 Management Agreement to provide greater transparency with respect to the maximum compensation payable to Messrs. Zelnick and Slatoff. Beyond this provision, the allocation of any revenues of ZelnickMedia among its principals is not set forth in the 2014 Management Agreement or determined by means of any process in which the Company participates. In connection with their provision of services to the Company pursuant to the 2014 Management Agreement, the actual amount of compensation received by Messrs. Zelnick and Slatoff is determined in the sole discretion of ZelnickMedia.

Mr. Zelnick and Mr. Slatoff both receive $1 annually in compensation from the Company, to provide them the opportunity to receive certain health and other plan benefits, the value of which is described in the Summary Compensation Table below. Mr. Slatoff receives his $1 of annual compensation pursuant to an employment agreement entered into with the Company in February 2008, the terms of which are described under “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements—Employment Agreements—Karl Slatoff” below.

 

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Fees and Incentives to ZelnickMedia under 2014 Management Agreement

 

Under the 2014 Management Agreement, fees and incentives paid to ZelnickMedia are comprised of the following:

 

   

Monthly fee of $247,500 ($2,970,000 annually); this fee is frozen for the full five-year term of the agreement.

 

 

   

Annual bonus opportunity ranging from $0 to $4,752,000, based solely on the Company’s Adjusted EBITDA performance versus pre-established goals; the maximum level is frozen for the full five-year term of the agreement.

 

 

   

As a result of the Company’s Adjusted EBITDA performance for fiscal 2017, ZelnickMedia received the maximum bonus of $4,752,000 for fiscal 2017.

 

 

   

Equity grant, which was made on May 20, 2016. This grant consisted of:

 

 

   

107,551 time-based RSUs, with the number of such units based on $3,850,000 divided by the Company’s 10-day average closing share price prior to April 1, 2016, which vest on April 1, 2018.

 

 

   

265,384 performance-based RSUs (representing the maximum number of performance-based RSUs), with the target number of units of 132,692 based on $4,750,000 divided by the Company’s 10-day average closing share price prior to April 1, 2016. Performance will be measured over the period commencing on April 1, 2016 and ending on March 30, 2018, with units vesting subject to the following pre-defined performance criteria:

 

 

   

75% of performance-based RSUs tied to relative TSR performance; and

 

 

   

25% of performance-based RSUs tied to sales performance in connection with releases of New IP (12.5%) and Major IP (12.5%).

 

 

   

The Compensation Committee has the ability to make future annual equity grants under the provisions of the 2014 Management Agreement, but the Compensation Committee is under no obligation to make additional equity grants.

 

 

   

On May 25, 2017, the Compensation Committee granted ZelnickMedia an equity grant, with the amount based in part on peer benchmarking. The equity grant consisted of:

 

 

   

66,122 time-based RSUs, with the number of such units based on $3,850,000 divided by the Company’s 10-day average closing share price prior to April 1, 2017, which vest on April 4, 2019.

 

 

   

163,160 performance-based RSUs (representing the maximum number of performance-based RSUs), with the target number of units of 81,580 based on $4,750,000 divided by the Company’s 10-day average closing share price prior to April 1, 2017. Performance will be measured over the period commencing on April 1, 2017 and ending on March 29, 2019, with units vesting subject to the following pre-defined performance criteria:

 

 

   

75% of performance-based RSUs tied to relative TSR performance; and

 

 

   

25% of performance-based RSUs tied to sales performance in connection with releases of New IP (12.5%) and Major IP (12.5%).

 

 

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For illustrative purposes only, assuming that ZelnickMedia allocated the maximum 60% of the payments under the 2014 Management Agreement to Mr. Zelnick and the maximum 40% of the payments under the 2014 Management Agreement to Mr. Slatoff, the compensation set forth above to Messrs. Zelnick and Slatoff would be as follows:

 

    Minimum   Target   Maximum
 

•  >80% Adjusted EBITDA Goal

•  >40th Percentile Relative TSR

•  Min IP Goal

 

•  100% Adjusted EBITDA Goal

•  50th Percentile Relative TSR

•  Target IP Goal

 

•  150% Adjusted EBITDA Goal

•  75th Percentile Relative TSR

•  Max IP Goal

Annual Management Fee

  $2,970,000    $2,970,000    $2,970,000 

Annual Incentive

Metric: Adjusted EBITDA

  $0    $2,376,000    $4,752,000 

Time-Based RSUs

  $3,850,000    $3,850,000    $3,850,000 

Performance-Based RSUs

Metrics: TSR and IP Performance

  $0    $4,750,000    $9,500,000 
Total Compensation Opportunity   $6,820,000    $13,946,000    $21,072,000 
 

Maximum Opportunity at Each Performance Level

Strauss Zelnick

  $4,092,000    $8,367,600    $12,643,200 

Karl Slatoff

  $2,728,000    $5,578,400    $8,428,800 

Historically, the targets set by the Board of Directors in ZelnickMedia management agreements have been sufficiently challenging that payouts to ZelnickMedia have varied. For example, on May 20, 2015, May 20, 2016 and April 4, 2017, ZelnickMedia forfeited 24,750, 27,578 and 46,752 shares, respectively, of performance-based RSUs due to the failure to meet maximum performance conditions.

III. Other NEO Compensation

Other NEOs for fiscal 2017 were Ms. Goldstein, our Chief Financial Officer and Mr. Emerson, our Executive Vice President and General Counsel. Pay opportunities for specific individuals vary based on a number of factors, such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new executive. Actual total compensation and the mix of such compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operational goals and the creation of shareholder value. The Compensation Committee believes that each of the compensation packages to Ms. Goldstein and Mr. Emerson are within the competitive range of practices when compared to the objective comparative data.

Compensation Overview

In September 2012, and January 2015, the Company entered into amended employment agreements with Ms. Goldstein, and Mr. Emerson, respectively, which provide for an annual base salary, annual cash bonus, and long-term incentive compensation opportunities. The details of those employment agreements are discussed below under “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements—Employment Agreements.”

Ms. Goldstein’s and Mr. Emerson’s fiscal 2017 target compensation was comprised of:

 

      Base Salary     

Target Annual Cash

Bonus Opportunity

(based on Adjusted EBITDA)

    

Target Equity Incentive Opportunity

(66.7% subject to performance

vesting)

Ms. Goldstein

   $ 676,520        $473,564 (70% of base salary)      $700,000

Mr. Emerson

   $ 500,000        $250,000 (50% of base salary)      $700,000

 

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As a result of the Company’s Adjusted EBITDA performance for fiscal 2017, Ms. Goldstein and Mr. Emerson each received a maximum cash bonus for such period in the following amounts: Ms. Goldstein $947,128; Mr. Emerson $375,000. As discussed below under “Principal Elements of Executive Compensation—Long-Term Equity Incentives,” in June 2017, Ms. Goldstein and Mr. Emerson each received an equity award based on a value of $1,050,000 (based in part on peer benchmarking), which was granted in recognition of performance during fiscal 2017.

IV. Competitive Market Positioning

The Compensation Committee determines pay levels for our NEOs based on a number of factors, including the individual’s role and responsibilities within the Company, the individual’s experience and expertise, historical compensation actually realized by the individual, pay levels in the marketplace for similar positions, and performance of the individual and the Company as a whole. In determining pay levels, the Compensation Committee considers all forms of compensation and benefits, including the mix thereof.

After consideration of data collected on external competitive levels of compensation and internal relationships within the executive group, the Compensation Committee makes decisions regarding each individual NEO’s target total compensation opportunity based on the need to attract, motivate and retain an experienced and effective management team.

Each year, the Compensation Committee reviews and approves the peer group companies that are used to evaluate competitive market compensation. In doing so, the Compensation Committee seeks to approve a peer group that is representative of the sector in which we operate, and includes companies with similar revenue and market capitalization as Take-Two.

Fiscal 2017 Peer Group

The peer group used to evaluate competitive market compensation of NEOs for fiscal 2017 was composed of the following 17 companies:

 

Videogame

 

Internet & Technology

 

Entertainment & Leisure

•      Activision Blizzard Inc.

 

•      Electronic Arts Inc.

 

•      Zynga Inc.

 

•      Autodesk Inc.

 

•      Fair Isaac Corporation

 

•      IAC/InterActiveCorp

 

•      Mentor Graphics Corporation

 

•      Pandora Media, Inc.

 

•      Nuance Communications, Inc.

 

•      Red Hat, Inc.

 

•      Rovi Corporation

 

•      WebMD Health Corp.

 

•      AMC Networks, Inc.

 

•      Scientific Games Corporation

 

•      Hasbro, Inc.

 

•      Lions Gate Entertainment Corp.

 

•      Scholastic Corporation

The fiscal 2017 peer group is the same as the peer group analyzed for our fiscal 2016 incentive program, except that one company was removed from the peer group (DreamWorks Animation SKG, Inc.) due to the announced sale of its business to Comcast Corporation which will result in executive compensation information about the company no longer being publicly available once the transaction is completed, and that two companies were added to the group (Scientific Games and Pandora Media) because each of the companies is comparably-sized to Take-Two and is engaged in entertainment or other consumer content businesses similar to the Company’s business.

 

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Fiscal 2018 Peer Group

Peer groups require periodic review for fit to ensure that the peer framework continues to provide an appropriate benchmark for executive pay levels and other policies and practices. As such, to support development of our incentive program for the fiscal year ending March 31, 2018 (“fiscal 2018”), Frederic W. Cook & Co., Inc. performed a peer group analysis in June 2017 and recommended certain adjustments to the peer group, which were adopted by our Compensation Committee.

The peer group used for competitive compensation analysis for fiscal 2018 is composed of the following 16 companies (shaded companies indicate new peers for fiscal 2018):

 

Videogame

 

Internet & Technology

 

Entertainment & Leisure

•      Activision Blizzard Inc.

 

 

•      Autodesk Inc.

 

 

•      Nuance Communications, Inc.

 

 

•      AMC Networks, Inc.

 

 

•      Electronic Arts Inc.

 

 

 

•      Fair Isaac Corporation

 

 

 

•      Red Hat, Inc.

 

 

•      Scientific Games Corporation

 

 

•      Zynga Inc.

 

 

•      IAC/InterActiveCorp

 

 

•      TiVo Corporation f/k/a Rovi Corporation

 

 

•      Hasbro, Inc.

 

•      Pandora Media, Inc.

 

 

•      WebMD Health Corp.

 

 

•      Lions Gate Entertainment Corp.

 

     

 

•      Mattel, Inc.

 

The Compensation Committee determined that the following changes should be made to the peer group for purposes of compensation planning for fiscal 2018, as compared to the peer group used for purposes of compensation planning for fiscal 2017: one company was removed from the peer group (Mentor Graphics Corporation) due to the sale of its business to Siemens AG which resulted in executive compensation information about the company no longer being publicly available; one company was removed (Scholastic Corporation) because it is not comparably-sized to Take-Two and is engaged in a business that is not as similar to the Company’s business as the other companies in the peer group; and one company was added to the group (Mattel, Inc.) because it is comparably-sized to Take-Two and is engaged in entertainment or other consumer content businesses similar to the Company’s business.

While the Compensation Committee believes that this peer group consists of those companies for which executive compensation information is publicly available that are most comparable to the Company, the Compensation Committee understands that Take-Two has a limited number of direct competitors in the videogame industry and that many of the Company’s competitors are either privately held and/or incorporated in foreign jurisdictions which do not require public disclosure of executive compensation. This dynamic creates added challenges when constructing a statistically reliable set of peers and requires that the Company expand its pool of potential peer companies to those that are tangentially related to the Company (i.e., internet and technology, and entertainment and leisure companies) and with which the Company may not compete directly to attract and retain talent. While imperfect, the Compensation Committee believes the peer group selected is representative of the sector in which the Company operates, and includes companies with similar revenue and market capitalization as Take-Two.

Target Determinations

The Compensation Committee annually reviews total NEO compensation as compared to competitive market data. For purposes of calculating annual target compensation for any fiscal year, the Compensation Committee includes annual base salary, annual target cash bonus, annual target long-term incentive compensation and any special awards.

Ms. Goldstein’s and Mr. Emerson’s annual pay targets in fiscal 2017 are both close to the median of the peer group used by the Company in considering executive compensation.

 

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V. Principal Elements of Executive Compensation

The following describes compensation processes and programs with respect to the NEOs other than the Executive Chairman and CEO and the President.

Pay Elements—Overview

Executive compensation for our NEOs consists of the following elements:

 

Direct Compensation Elements

  

Indirect Compensation Elements

Base Salary

   Other Compensation/Employee Benefits

Annual Cash Incentive

   Severance and Change in Control Protection

Long-Term Equity Incentives

  

Base Salary

The base salary component is intended to provide fixed pay that takes into account an NEO’s role and responsibilities, experience, expertise, marketplace comparables and individual performance, and although established by the NEOs’ employment agreements, is subject to annual review by the Compensation Committee, including for discretionary year-to-year increases. Ms. Goldstein’s base salary increased from $663,255 to $676,520 in fiscal 2017 because, as discussed below under “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements,” the amended employment agreement with Ms. Goldstein provides for an automatic, annual cost of living increase in base salary of 2% each year commencing on and after April 1, 2013, which was consistent with the average Company-wide increase in base salary. Mr. Emerson’s base salary increased from $435,000 in fiscal 2016 to $500,000 in fiscal 2017 based on peer benchmarking, as well as Mr. Emerson’s strong individual performance and value to the organization as a key senior leader. On May 23, 2017, the Compensation Committee approved an increase to Mr. Emerson’s base salary, effective April 1, 2017, to $515,000 based in part on peer benchmarking.

Annual Cash Incentive

The Compensation Committee has the authority to award annual performance-based cash bonuses to the NEOs pursuant to their employment agreements with the Company. The Compensation Committee believes that an annual performance-based bonus opportunity provides the incentives necessary to retain our NEOs and reward them for their attainment of the Company’s business goals. In fiscal 2017, Ms. Goldstein and Mr. Emerson were eligible to receive an annual cash bonus pursuant to the terms of their employment agreements.

Pursuant to her amended employment agreement, Ms. Goldstein’s target contractual bonus ranges from 0% to 140% of base salary. Annual bonus targets are set at 70% of base salary, so achievement of 100% of the Company’s target Adjusted EBITDA would result in a bonus of 70% of base salary. Maximum bonus amounts are capped at 140% of base salary.

Pursuant to his employment agreement, Mr. Emerson is entitled to a target bonus equal to 50% of base salary. The maximum bonus amount was capped at 150% of his target bonus amount in fiscal 2017. For fiscal 2018, the Compensation Committee approved a change to Mr. Emerson’s bonus structure so that it will be the same as Ms. Goldstein’s.

Annual bonus awards for Ms. Goldstein and Mr. Emerson are performance-based and primarily dependent on achievement of budgeted Adjusted EBITDA over the applicable fiscal year. Budgeted Adjusted EBITDA targets are pre-determined at the beginning of the applicable fiscal year and the Adjusted EBITDA measure is calculated by taking GAAP net income recorded for the Company, adding back or subtracting the net effect from

 

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deferral in net revenues and related costs of goods sold, impact of business reorganization, one-time gains or losses on long-term investments, and adding back stock based compensation, interest, depreciation, amortization and tax expenses. The Compensation Committee believes that using budgeted Adjusted EBITDA as the core performance metric in the annual bonus design represents an appropriate measure of the Company’s performance and an appropriate way to align NEOs’ short-term incentives with our shareholders’ interests.

Bonus amounts for Ms. Goldstein are (and for Mr. Emerson in fiscal 2018 will be) a function of Adjusted EBITDA relative to target, as set forth in the following table:

 

Adjusted EBITDA Achievement

  

Annual Bonus

Less than 80% of the budget

   No bonus earned

80% - 100% of the budget

   0% - 70% of base salary

100% - 120% of the budget

   70% - 100% of base salary

120% - 150% of the budget

   100% - 140% of base salary

Greater than 150% of the budget

   Capped at 140% of base salary

Budgeted Adjusted EBITDA for fiscal 2017 was $209.5 million and the Company achieved actual Adjusted EBITDA of $336.1 million. This Adjusted EBITDA achievement was greater than 150% of the budgeted Adjusted EBITDA, and so Ms. Goldstein and Mr. Emerson each received the maximum annual cash bonus as follows:

 

    

Annual

Salary

    Target Bonus   Maximum Bonus  

Actual

Bonus

 

  Ms. Goldstein

    $676,520     $473,564 (70% of base salary)   $947,128 (140% of base salary)     $947,128  

  Mr. Emerson

    $500,000     $250,000 (50% of base salary)   $375,000 (75% of base salary)     $375,000  

Long-Term Equity Incentives

We believe that equity-based awards are an important factor in aligning the long-term financial interests of the NEOs and certain other employees of the Company with its shareholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering the Company’s compensation program. Equity-based awards are generally granted to new key employees on a quarterly basis following the commencement of employment and to existing key employees on an annual basis and following a significant change in job responsibilities or to meet other special retention objectives.

Our compensation program design, in particular the use of equity awards as a key incentive element, establishes strong links between our creative teams and long-term value creation for shareholders. Our long-term equity incentive program reflects the importance of creative talent to our business and allows for Take-Two to retain and incentivize key talent.

All grants made to employees, including the NEOs, are approved by the Compensation Committee. The current outstanding awards granted to our NEOs were made under the Company’s 2009 Stock Incentive Plan, as amended and restated (the “2009 Plan”), which is discussed further in “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements.”

The Company generally uses a mix of time-based and performance-based vesting for NEO long-term equity incentive grants to achieve separate and distinct purposes. Time-based vesting awards emphasize the retention of skilled executives, while performance-based vesting awards support the goal of retention as well as alignment of the executives’ incentives with the interests of the Company’s shareholders.

 

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NEO Long-Term Incentives Awarded in Fiscal 2017

In May 2016, the Compensation Committee determined that the Company would issue an award of 28,499 RSUs based on a value of $1,050,000 to each of Ms. Goldstein and Mr. Emerson based in part on peer benchmarking. The Compensation Committee made the fiscal 2017 grants in the form of RSUs in June 2016, rather than in the form of restricted stock, in order to preserve flexibility to settle the awards in stock, cash or a combination of stock and cash. One grant, equal to 66.7% of the value at target, was a performance-based grant subject to satisfaction of TSR performance criteria during the vesting period (described in more detail below). A second grant, equal to 33.3% of the value at target, consisted of time-based RSUs and vests in three (3) equal annual installments commencing on June 1, 2017 based on Ms. Goldstein’s and Mr. Emerson’s, as applicable, continued service with the Company. The number of shares of common stock that may be issued upon vesting of the performance-based RSUs included in the award amounts stated above assumes the achievement of the target performance criteria established by the Compensation Committee; however, the actual number of such shares for each grant may range from zero to a maximum of 37,998 (equal to 200% of target), with the number of shares at target performance equal to 18,999.

The awards were as follows:

 

Time-Based

RSUs (#)

 

Time Based

RSUs ($)

  Performance-Based
RSUs (#) (at  target)
 

Performance

Based RSUs ($)

(at target)

  Performance-Based
RSUs (#) (at max)
 

Performance

Based RSUs ($)

(at max)

9,500

  $350,000   18,999   $700,000   37,998   $1,400,000

In early fiscal 2015, the Compensation Committee approved a number of changes to the long-term incentive program that became effective with fiscal 2015 equity grants. These changes included:

 

   

Elimination of the Adjusted EBITDA “catch-up” metric from the performance-based awards. Previously, performance-based equity vested on achievement of share price appreciation, or Adjusted EBITDA goals in cases when the share price appreciation levels were not achieved. This change eliminated the secondary performance test. The Compensation Committee believed this change strengthened the rigor of the plan and improved alignment with shareholders.

 

   

Adoption of a relative TSR metric for performance-based awards. The relative TSR metric replaced the previous share appreciation metric. Take-Two’s TSR performance is now measured against the NASDAQ Composite Index over a period of two years to determine achievement of TSR goals. The TSR performance schedule is as follows:

 

TSR Percentile Rank

   Shares Earned
as % of
Target
 

Less than 40th Percentile

     0

40th Percentile

     50

50th Percentile

     100

75th Percentile

     200

NEO Long-Term Incentives Awarded in Fiscal 2018

In May 2017, the Compensation Committee determined that the Company would issue an award of 14,369 RSUs based on a value of $1,050,000 (based in part on peer benchmarking) to each of Ms. Goldstein and Mr. Emerson in recognition of the achievement of their individual performance goals and targets during fiscal 2017. The RSUs are comprised of:

 

  (i) 4,785 time-based RSUs that vest in three (3) equal annual installments commencing on June 1, 2018; and

 

  (ii) 9,584 performance-based RSUs that vest in two (2) equal annual installments commencing on June 1, 2019, subject to the satisfaction of certain performance criteria based on relative TSR performance during the measurement period.

 

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The number of RSUs was determined based on the dollar value of the award and the average of the closing prices of the Company’s common stock on the ten trading days prior to June 1, 2017, the fifth trading day following the filing of the Company’s Annual Report on Form 10-K. The number of shares of common stock that may be issued upon vesting of the performance-based RSUs assumes the achievement of the target performance criteria established by the Compensation Committee; however, the actual number of such shares may range from zero to a maximum of 19,168 (equal to 200% of target), with the number of shares at target performance equal to 9,584.

SEC regulations generally require that the grant date fair value of equity awards be disclosed in the Summary Compensation Table for the year in which the equity awards were granted, not the year to which the services relate. As a result, the grant date value for equity grants made in June 2016 are shown in the Summary Compensation Table on page 47, and the grant date value for the equity grants made in June 2017 will be reflected in the Summary Compensation Table in our proxy statement for the 2018 Annual Meeting of Shareholders.

NEO Long-Term Incentive Awards Vested in Fiscal 2017

The results and payout levels for the performance-based RSUs and/or restricted stock previously granted to Ms. Goldstein and Mr. Emerson that vested, or failed to vest, in fiscal 2017, are as follows:

 

    

Performance-Based RSUs and/or Restricted Stock
Vested

(#)

 

Performance-Based RSUs and/or Restricted Stock
Forfeited

(#)

Ms. Goldstein

  157,149(1)   0

Mr. Emerson

  10,590(2)   0

 

(1) Represents (i) 14,385 performance-based RSUs originally granted on June 10, 2013, which vested on May 21, 2016, (ii) 35,038 performance-based RSUs originally granted on September 23, 2014, which vested on May 27, 2016, and (iii) 107,726 shares of performance-based restricted stock originally granted on November 7, 2012, which vested on March 31, 2017, in each case for which the maximum performance criteria was achieved.
(2) Represents (i) 3,082 shares of performance-based restricted stock originally granted on June 10, 2013, which vested on May 21, 2016, and (ii) 7,508 performance-based RSUs originally granted on September 17, 2014, which vested on May 27, 2016, in each case for which the maximum performance criteria was achieved.

For a description of the results and payout levels for performance-based RSUs previously granted to ZelnickMedia that vested, or failed to vest, in fiscal 2017, see “Certain Relationships and Related Transactions—Management Agreement—Awards under the 2014 Management Agreement.”

Other Compensation

401(k) Plan

We maintain a 401(k) savings plan and trust for our eligible employees, including our NEOs (other than Messrs. Zelnick and Slatoff). The plan permits each participant to make voluntary pre-tax contributions, post-tax “Roth” contributions or a combination of the two, and in addition, we make matching contributions equal to 50% of the participant’s eligible elective deferral (excluding catch-up contributions) contributed to the 401(k) savings plan, but not more than an amount equal to 50% of the first 6% of the participant’s pre-tax and/or Roth contributions will be matched. See the “All Other Compensation” column in the Summary Compensation Table for further information regarding these benefits.

 

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Medical Expenses Reimbursement Plan

We maintain a medical expenses reimbursement plan (the “MERP”) for all of the NEOs, including for this purpose Messrs. Zelnick and Slatoff. Pursuant to the MERP, the participating NEOs are reimbursed for medical, dental and vision expenses that are not otherwise reimbursed by our group health insurance program.

Other Benefits and Perquisites

We provide health insurance, dental insurance, life and accidental death and dismemberment insurance and short-term and long-term disability benefits for our NEOs, including for this purpose Messrs. Zelnick and Slatoff, on the same basis as such benefits are generally provided to our employees. In addition, we pay a club membership fee on behalf of Mr. Zelnick, which is used primarily for general corporate and corporate development purposes. Other than the MERP and the club membership fee, no material perquisites are provided to our NEOs. We do not have a formal perquisite policy and do not emphasize special perquisites for our executive officers, although the Compensation Committee periodically reviews perquisites for our executive officers in its review of compensation.

Severance and Change in Control Benefits

Severance and Change in Control Benefits for ZelnickMedia

Pursuant to the 2014 Management Agreement, ZelnickMedia would receive the following cash payments and benefits upon a termination by the Company without “cause” or by ZelnickMedia for “good reason” (whether before or after a change in control): (i) the earned but unpaid portion of the management fee, (ii) any accrued but unpaid annual bonus for a completed fiscal year and (iii) three times the sum of the per annum management fee plus the target bonus amount. See “Certain Relationships and Related Transactions—Management Agreement” for more details. In addition, the 2014 Management Agreement provides for accelerated vesting of outstanding and unvested equity awards upon such a termination (with vesting of TSR performance-based awards determined according to actual performance through the date of termination, and vesting of New IP and Major IP performance-based awards determined at target levels).

The cash payments described above remain consistent whether the termination occurs before or after a change in control, so ZelnickMedia is not entitled to receive any enhanced cash payments in connection with a change in control. With respect to vesting of equity awards in connection with a change in control, the 2014 Management Agreement provides for “double-trigger” vesting. Accordingly, if a change in control occurs during the term of the 2014 Management Agreement, outstanding and unvested equity awards will continue to vest (and performance-based RSUs will continue to vest at target levels) in accordance with the original vesting schedule, subject to earlier vesting upon a termination of the 2014 Management Agreement without cause or for good reason.

Severance and Change in Control Benefits for Other NEOs

In March 2008, the Compensation Committee approved the Take-Two Interactive Software, Inc. Change in Control Employee Severance Plan (the “CIC Severance Plan”), a change in control plan pursuant to which certain eligible employees, including the NEOs other than Messrs. Zelnick and Slatoff, may receive certain “double-trigger” cash severance benefits upon a termination of employment either by the Company without “cause” or voluntarily for “good reason,” in either case during the 12-month period following a change in control of the Company, as well as vesting of outstanding and unvested equity awards in connection with a change in control of the Company, as described under “Executive Compensation—Potential Payments Upon Termination or Change in Control” below. The employment agreements with Ms. Goldstein and Mr. Emerson provide for severance payments in the event of a separation from service from the Company under certain conditions, as well as payments in the event of a change in control of the Company. See “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements” and “Executive Compensation—Potential

 

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Payments Upon Termination or Change in Control” below for more information. We believe that these severance benefits assist us in recruiting talented individuals to join and remain a part of our management team. From time to time, we may recruit executives from other companies where they have job security, tenure and career opportunities. Accepting a position with us may entail foregoing an otherwise secure position at another employer, and the benefits provided by the CIC Severance Plan help to mitigate the risk of harm that the executive may suffer in connection with adverse actions taken by a successor to the Company. Severance benefits also allow our NEOs to focus on the Company’s business without being unduly distracted by concerns about their job security in the event of a separation from service or a change in control. Our NEOs are not entitled to any gross-up payments to cover excise taxes imposed by the “golden parachute” regulations under Sections 280G and 4999 of the Code.

VI. Operation of the Compensation Committee

General

The Compensation Committee annually reviews compensation policies and procedures of the Company and evaluates and approves the NEOs’ compensation. The Compensation Committee also annually reviews the ZelnickMedia relationship. This review includes annual individual interviews with a broad group of executives, excluding our Executive Chairman and CEO and our President, to seek feedback on the ZelnickMedia relationship.

The Compensation Committee held five (5) meetings during fiscal 2017. The Compensation Committee regularly meets at least four times during the fiscal year.

Role of Management

When determining the compensation of the NEOs, the Compensation Committee solicits from the Executive Chairman and CEO an evaluation of the performance of, and recommendations with respect to compensation decisions for, each of the NEOs other than himself. In addition, with respect to setting compensation for fiscal 2017, the Compensation Committee interviewed all of the NEOs, including the CEO and President, and members of our management team who report to the NEOs in order to better assess each NEO’s performance during such period. The Compensation Committee also interviewed certain of the foregoing individuals in connection with its annual review, in conjunction with the Board of Directors, of ZelnickMedia’s performance during such period.

Use of Outside Advisors

The Compensation Committee has historically engaged the services of independent compensation consulting firms in connection with making executive compensation determinations. Consistent with our practice, the Compensation Committee retained Frederic W. Cook & Co., Inc. to review the compensation programs for our NEOs and our Board of Directors for fiscal 2017, and to develop recommendations regarding our compensation programs for our fiscal years ending March 31, 2017 and March 31, 2018.

The Compensation Committee has the authority to retain, terminate and set the terms of the Company’s relationship with any outside advisors that assist the Compensation Committee in carrying out its responsibilities.

The Compensation Committee assessed the independence of Frederic W. Cook & Co., Inc. pursuant to SEC and NASDAQ rules and was satisfied that the firm is independent and that no conflict of interest exists that would prevent it from serving as an independent advisor to the Compensation Committee. The Compensation Committee, among other things, reviewed and was satisfied with the consultant’s policies and procedures to prevent or mitigate conflicts of interest. The Compensation Committee also reviewed and was satisfied that there were no business or personal relationships between members of the Compensation Committee and the individuals at the consulting firm supporting the Compensation Committee.

 

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VII. Compensation Governance Practices

Clawback Policy

Our Corporate Governance Guidelines includes a section entitled “Recovery of Improperly-Awarded Incentive Compensation” which is our “Clawback Policy.” Our NEOs (including ZelnickMedia and its shareholders, partners, employees, members and other affiliates who are deemed “Executives” under the Clawback Policy) are subject to the Clawback Policy. Our Corporate Governance Guidelines, including our Clawback Policy, are available on the Company’s website at www.take2games.com by clicking on the “Corporate” tab, and then clicking on the “Corporate Governance” link. Our Clawback Policy includes any amendments that may be required to comply with any rules adopted by the SEC in response to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This policy requires the reimbursement of any bonus or incentive compensation, including cash bonuses, awarded to a covered person and/or the cancellation of unvested restricted stock or outstanding stock option awards previously granted to a covered person, in each case, where: (1) the payment was predicated upon achieving certain financial results that were subsequently determined to have been erroneously reported; (2) the Board of Directors determines that the person engaged in knowing or intentional fraudulent or illegal conduct that caused or substantially caused such erroneous reporting to have occurred; and (3) a lower payment would have been made to the person based upon the corrected financial results.

Executive Officer Stock Ownership Requirements and Holding Requirement

The Company has adopted stock ownership requirements for executive officers of the Company as follows:

Executive Chairman and CEO and President

As discussed elsewhere in this Proxy Statement, our Executive Chairman and CEO and our President are compensated through the operation of the 2014 Management Agreement, which contain certain provisions relating to stock ownership applicable to ZelnickMedia and its affiliates. In July 2016, the Board of Directors also adopted a policy relating to stock ownership guidelines applicable to any individual who serves as an executive officer of the Company pursuant to an agreement with a third party consultant, which currently includes our Executive Chairman and CEO and our President. The 2014 Management Agreement and the stock ownership guidelines policy adopted by the Board of Directors both prohibit, prior to March 31, 2019, ZelnickMedia and any Subject Person (as defined in the 2014 Management Agreement and which includes Messrs. Zelnick and Slatoff) from selling or otherwise disposing of any shares of common stock of the Company, if the Market Value (as defined in the 2014 Management Agreement) of all shares of common stock of the Company (including any options, restricted stock and RSUs), after giving effect to such proposed sale or other disposition, owned by ZelnickMedia and each Subject Person, including Messrs. Zelnick and Slatoff, in the aggregate as of the trading day immediately preceding the date of the proposed sale or disposition, would be less than five times the per annum management fee (excluding any bonuses).

Other NEOs

Under the Company’s stock ownership requirements, NEOs (other than the Executive Chairman and CEO and President (who are currently subject to the stock ownership requirements described above)) shall own shares of common stock having a value equal to three times the annual base salary paid by the Company to its NEOs. Such NEOs shall achieve such stock position within five years after the date of the adoption of the requirements and future NEOs shall achieve such ownership position within five years after the date of their appointment as NEOs. For purposes of determining compliance with the stock ownership requirements, all shares that are directly owned by the NEO, shares that are beneficially owned by the NEO, such as shares held in “street name” through a broker or shares held in trust, and vested and unvested shares of restricted stock and RSUs are counted toward satisfying the requirements.

 

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The policy adopted by the Board of Directors in July 2016 also includes stock retention guidelines for all NEOs requiring such officers to retain at least 50% of the total equity credited from grants of equity awards (net of amounts required to pay taxes and exercise prices) until compliance with the applicable stock ownership requirement is achieved. All NEOs are in compliance with the applicable stock ownership requirements as of the date of this proxy filing.

Anti-Hedging Policy

The Company has adopted a Securities Trading Policy which prohibits, among other things, officers, directors, employees and consultants of the Company, as well as the shareholders, partners, employees, members, and other affiliates of ZelnickMedia who are service providers to the Company subject to such policy, from engaging in the following transactions:

 

   

In and Out Trading. (All purchases of the Company’s securities in the open market must be held for a minimum of six months, with exceptions relating to the exercise of stock options.)

 

   

Purchases of Company securities on margin or holding any Company securities in margin accounts.

 

   

Pledging Company securities as collateral for a loan.

 

   

Short sales of the Company’s securities.

 

   

Transactions in puts, calls or other derivatives on the Company’s securities, as well as any other derivative or hedging transactions on Company securities.

The anti-hedging restrictions contained in the Securities Trading Policy were adopted by our Board of Directors in 2014.

Anti-Pledging Policy

As a matter of good corporate governance, our Board of Directors has adopted a formal policy against pledging common stock pursuant to which members of the Board of Directors and executive officers may not hold common stock in margin accounts and may not pledge common stock as collateral for a loan. None of our directors or executive officers has pledged any shares of our common stock.

Impact of Tax and Accounting Rules

As a general matter, the Compensation Committee reviews and considers the various tax and accounting implications of compensation vehicles utilized by the Company.

With respect to accounting considerations, the Compensation Committee examines the accounting cost associated with equity compensation in light of requirements under the Accounting Standards Codification (“ASC”) Stock Compensation guidance, which generally requires the Company to recognize compensation expense relating to equity awards based upon the grant date fair value of those awards. The Company also considers the accounting impact of preserving flexibility to settle RSUs awards in cash, shares, or a combination of cash and shares.

With respect to taxes, the Compensation Committee may consider the anticipated tax treatment of various payments and benefits to the Company and, when relevant, to its executives. Section 162(m) of the Code generally prohibits any publicly held corporation from taking a federal income tax deduction for compensation paid in excess of $1 million in any taxable year to the NEOs (other than our chief financial officer), subject to certain exceptions. However, the Company generally believes that it is in our best interest and that of our shareholders to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the Code to provide a compensation package consistent with our program and objectives.

 

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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors of the Company that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

   Submitted by the Compensation Committee
   of the Board of Directors:
   Michael Sheresky (Chair)
   Michael Dornemann

July 27, 2017

   J Moses

RISK ASSESSMENT OF OVERALL COMPENSATION PROGRAM

The Compensation Committee regularly reviews senior executive compensation and Company-wide compensation programs and policies in an ongoing effort to seek to eliminate or mitigate potential risks arising from such programs and policies and to ensure that our compensation structure, elements and incentives are not reasonably likely to have a material adverse effect on the Company.

The Compensation Committee seeks to design our compensation plans, including our incentive compensation programs, to incorporate a range of components that we believe help to mitigate potential risks, while rewarding employees for pursuing our strategic and financial objectives through appropriate risk taking, risk management, and prudent tactical and strategic decision making. For example, the design of our compensation plans is intended to encourage employees to remain focused on both the short-term and long-term goals of the Company by using a mix of short-term and long-term incentives to motivate employees to produce superior short-term and long-term results, and we believe that the use of long-term incentives for executives provides a safeguard against excessive risk-taking. Our long-term incentives are designed to deter risk-taking by aligning our employees’ interests with those of shareholders by incorporating equity-based compensation that vests over time and, in some cases, include a market-based performance metric, which we believe is not susceptible to manipulation by employees and encourages employees to remain focused on sustained stock price appreciation. Individual bonus caps for senior executives further mitigate risk.

We have also sought to deter unnecessary risk-taking by applying a clawback policy to certain senior executives of the Company, which requires the reimbursement of any bonus or incentive compensation awarded to a covered person and/or the cancellation of unvested restricted stock or outstanding stock option awards previously granted to a covered person under certain conditions, in each case, where (1) the payment was predicated upon achieving certain financial results that were subsequently determined to have been erroneously reported, (2) the Board of Directors determines that the person engaged in knowing or intentional fraudulent or illegal conduct that caused or substantially caused such erroneous reporting to have occurred, and (3) a lower payment would have been made to the person based upon the corrected financial results.

In addition, our stock ownership guidelines require that our executive officers hold a significant amount of common stock to further align their interests with shareholders over the long term by having a portion of their personal investment portfolio consist of common stock. We expect this component to mitigate risk on a prospective basis. We also prohibit transactions designed to limit or eliminate economic risks to our employees of owning our common stock, such as options, puts, and calls, so our executives cannot insulate themselves from the effects of poor stock price performance.

Senior executives from our risk, compliance, administrative, and finance functions, as well as the outside compensation consultant to our Compensation Committee, are involved in this annual review process. With respect to fiscal 2017 and the compensation programs in place for fiscal 2017, based in part on the information and analyses provided by management and its own advisors, the Compensation Committee concluded that the Company’s compensation programs are not reasonably likely to have a material adverse effect on the Company.

 

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EXECUTIVE COMPENSATION

The following table sets forth summary information for the fiscal years ended March 31, 2017, March 31, 2016, and March 31, 2015, with respect to cash and all other compensation paid by the Company to, or earned by, the Company’s NEOs.

Summary Compensation Table

 

Name and Principal Position

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

Strauss Zelnick(4)

     2017        1        —          —          23,269       23,270  

Executive Chairman and Chief Executive Officer

     2016        1        —          —          22,873       22,874  
     2015        1        —          —          20,913       20,914  

Lainie Goldstein

     2017        676,520        1,427,984        947,128        14,720       3,066,352  

Chief Financial Officer

     2016        663,255        1,395,729        928,557        14,286       3,001,827  
     2015        650,250        1,686,554        910,350        14,284       3,261,438  

Karl Slatoff(4)

     2017        1        —          —          20,220       20,221  

President

     2016        1        —          —          19,824       19,825  
     2015        1        —          —          19,824       19,825  

Daniel Emerson

     2017        500,000        1,427,984        375,000        28,770       2,331,754  

Executive Vice President and General Counsel

     2016        435,000        1,395,729        326,250        229,770 (5)      2,386,749  
     2015        397,781        447,101        299,063        89,209 (6)      1,233,154  

 

(1) Represents the aggregate grant date fair value of stock awards granted to our NEOs in each of the reporting periods, determined under FASB ASC Topic 718, Compensation—Stock Compensation. For additional information with respect to stock awards granted during fiscal 2017, see Note 15 under the heading “Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for fiscal 2017. The amounts above reflect the grant date fair value for these awards, excluding the accounting effect of any estimate of future service-based forfeitures, and do not necessarily correspond to the actual value that might be realized by the NEOs which depends on the market value of the Company’s common stock on a date in the future when the stock award vests. For time-vested RSUs, that value is based on the fair market value of the Company’s common stock on the grant date and is determined by multiplying the number of shares subject to the grant by the closing price per share of the Company’s common stock. The value of the performance-vested RSUs reflects the value of the awards at the grant date based upon the probable outcome of the performance conditions using the Monte Carlo simulation model and is consistent with our estimate of the aggregate compensation cost to be recognized over the vesting period determined in accordance with FASB ASC Topic 718, Compensation—Stock Compensation, which is less than the maximum possible value. The following table shows the value of the NEOs’ respective performance-vested awards on the date of grant at both the probable outcome of the performance conditions, which is reflected in the table above, as well as the maximum achievement of the applicable performance conditions.

 

Name

   Fiscal
Year
     Probable Outcome
($)
     Maximum Performance
($)
 

Lainie Goldstein

     2017        1,062,234        1,462,923  
     2016        1,042,917        1,411,249  
     2015        1,280,989        1,622,259  

Daniel Emerson

     2017        1,062,234        1,462,923  
     2016        1,042,917        1,411,249  
     2015        274,492        345,218  

 

(2) These amounts represent annual cash incentive payments. For more information, refer to “Compensation Discussion and Analysis—Annual Cash Incentive” above and the “Grants of Plan-Based Awards” table below.
(3) The amounts set forth in this column for fiscal 2017 represent (i) the Company’s matching contributions to the Company’s 401(k) plan for Ms. Goldstein and Mr. Emerson, (ii) medical, dental and vision expense reimbursements made pursuant to the Company’s MERP and (iii) a club membership fee paid by the Company on behalf of Mr. Zelnick, used primarily for general corporate and corporate development purposes.

 

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(4) As discussed in more detail below, Messrs. Zelnick and Slatoff were compensated for their respective services to the Company during fiscal years 2017, 2016 and 2015 pursuant to the 2014 Management Agreement. The provisions of the 2014 Management Agreement establish the payments and benefits to which ZelnickMedia is entitled as consideration for providing the services set forth therein. In general, in connection with their provision of services to the Company, the actual amount of compensation received by Messrs. Zelnick and Slatoff is determined in the sole discretion of ZelnickMedia and without the Company’s knowledge, except that, under the terms of the 2014 Management Agreement, Mr. Zelnick may not receive more than 60% of the payments and benefits made to ZelnickMedia and Mr. Slatoff may not receive more than 40% of the payments and benefits made to ZelnickMedia.
(5) Includes tax gross ups of $202,146 on certain relocation benefits provided to Mr. Emerson in connection with his temporary relocation from New York City to Singapore in April 2013 and back to New York City in October 2014, which relocation benefits the Company generally makes available to all employees that are asked to relocate internationally. The amount of such tax gross up will be offset in the future if Mr. Emerson is required to make a payment to the Company as part of the Company’s tax equalization policy.
(6) Includes net tax gross ups of $61,066 on certain relocation benefits provided to Mr. Emerson in connection with his temporary relocation from New York City to Singapore in April 2013 and back to New York City in October 2014, which relocation benefits the Company generally makes available to all employees that are asked to relocate internationally. The amount of the net tax gross up is equal to $189,059 of taxes paid by the Company less $127,993 paid by Mr. Emerson to the Company as part of the Company’s tax equalization policy.

Grants of Plan-Based Awards

The following table sets forth information concerning awards under the Company’s equity and non-equity incentive plans granted to each of the NEOs during fiscal 2017, including performance-based awards and those using time-based vesting. Assumptions used in the calculation of certain dollar amounts are included in Note 15 to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2017.

 

    Grant
Date
    Approval Date    

Estimated Future Payouts

Under
Non-Equity Incentive Plan
Awards(1)

   

Estimated Future Payouts

Under
Equity Incentive Plan
Awards(2)

    All Other
Stock Awards:

Number of
Shares of
Stock or
Units(2)
(#)
    Grant Date
Fair Value of
Stock
Awards
($)(4)
 

Name

      Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)(3)
     

Strauss Zelnick(5)

    —         —         —         —         —         —         —         —         —         —    

Lainie Goldstein

    6/1/2016       5/26/2016       —             —         18,999       37,998       —         1,062,234  
    6/1/2016       5/26/2016       —         —         —         —         —         —         9,500       365,750  
    —         —         —         473,564       947,128       —         —         —         —         —    

Karl Slatoff(5)

    —         —         —         —         —         —         —         —         —         —    

Daniel Emerson

    6/1/2016       5/26/2016       —         —         —         —         18,999       37,998       —         1,062,234  
    6/1/2016       5/26/2016       —         —         —         —         —         —         9,500       365,750  
    —         —         —         250,000       375,000       —         —         —         —         —    

 

(1) Represents cash performance bonus opportunities ranging from 0% to 140% of base salary for Ms. Goldstein, and from 0% to 75% of base salary for Mr. Emerson. There is no set minimum payout amount. See “Compensation Discussion and Analysis—Annual Cash Incentive.” Bonus amounts for Mr. Emerson are based on a target equal to 50% of base salary, with a maximum bonus amount capped at 150% of his target bonus amount in fiscal 2017.
(2) For Ms. Goldstein and Mr. Emerson, 66.7% of the RSUs vest in two (2) equal annual installments commencing in the second year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant, subject to the satisfaction of certain performance criteria based on the Company’s TSR performance measured against the NASDAQ Composite Index over a period of two (2) years. The remaining 33.3% of the RSUs vest in three (3) equal annual installments commencing in the year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant based on the NEO’s continued service with the Company.
(3) Represents the maximum shares of performance-vested RSUs. Such RSUs will vest, if at all, 50% on June 1, 2018 and 50% on June 1, 2019.
(4)

These amounts are valued based on the aggregate grant date fair market value of the award. For additional information with respect to stock awards granted during fiscal 2017, see Note 15 under the heading “Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for fiscal 2017. The grant date fair value of equity incentive plan awards that are subject to performance-based vesting conditions is based upon the probable outcome of such conditions. All amounts reflect the grant

 

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  date fair value for these awards, excluding the accounting effect of any estimate of future service-based forfeitures, and do not necessarily correspond to the actual value that might be realized by the NEOs.
(5) Messrs. Zelnick and Slatoff have not received grants of restricted stock, RSUs or option awards. Messrs. Zelnick and Slatoff are partners in ZelnickMedia, to which the Company has previously granted restricted stock, RSUs and options pursuant to the Management Agreements. For information regarding the grants made to ZelnickMedia, see “Certain Relationships and Related Transactions.”

Narrative Disclosure Regarding Equity Plans and Employment Agreements

2009 Stock Incentive Plan

The Take-Two Interactive Software, Inc. 2009 Stock Incentive Plan was approved by shareholders on April 23, 2009. Under the 2009 Plan, the Company may grant stock-based incentive compensation awards to eligible employees (including officers), non-employee directors and consultants in the form of stock options, stock appreciation rights, restricted stock and other stock-based awards.

On April 23, 2009, the Board of Directors approved and adopted amendments to the 2002 Stock Option Plan and the Company’s Incentive Stock Plan to provide that all shares of common stock remaining available for grant under such plans as of the close of business on that date would be transferred to the 2009 Plan; no shares of common stock would be available for the grant of awards under such plans following the close of business on that date; and shares of common stock that were subject to any award under either such plan that were forfeited after the close of business on that date would not be available for grant under such plan. Pursuant to those amendments, 1,508,954 “carryover shares” became available for issuance under the 2009 Plan.

On April 15, 2010, the shareholders of the Company approved an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants under the 2009 Plan in connection with awards granted from 4,900,000 to 7,650,000 (excluding the carryover shares). On September 26, 2011, the shareholders of the Company approved an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants under the 2009 Plan in connection with awards granted to 12,650,000 (excluding the carryover shares). On September 20, 2012, the shareholders of the Company approved and adopted an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants in connection with awards granted to 15,450,000 (excluding the carryover shares). On September 18, 2013, the shareholders of the Company approved and adopted an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants in connection with awards granted to 20,700,000 (excluding the carryover shares). On September 16, 2014, the shareholders of the Company approved and adopted an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants in connection with awards granted to 25,700,000 (excluding the carryover shares). On September 22, 2016, the shareholders of the Company approved and adopted an amendment to the 2009 Plan, which increased the number of shares that may be issued to participants in connection with awards granted to 27,100,000 (excluding the carryover shares).

The Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan, if approved by our shareholders, will replace the 2009 Plan and no additional awards will be made under the 2009 Plan from and after the date of such approval. For a more detailed description of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan, see Proposal 4 (“Adoption of the 2017 Stock Incentive Plan”) of this Proxy Statement.

Employment Agreements

Lainie Goldstein

Ms. Goldstein serves as Chief Financial Officer of the Company pursuant to an employment agreement between the Company and Ms. Goldstein, dated May 12, 2010, as amended on October 25, 2010 and August 27, 2012. Pursuant to the employment agreement, Ms. Goldstein will continue to serve as Chief Financial Officer of the Company until March 31, 2013, and thereafter for successive one-year periods until either party elects not to renew the term of the agreement (each, a “renewal term”).

 

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Pursuant to the terms of the employment agreement, Ms. Goldstein received an annual base salary of $625,000 through March 31, 2013. Ms. Goldstein’s base salary increased in each of 2013, 2014, 2015, and was most recently increased to $676,520 on April 1, 2016, in each case pursuant to her employment agreement, which was amended in 2012 to provide that her salary will be increased by 2% at the start of each renewal term commencing on and after April 1, 2013. Ms. Goldstein will also be eligible to receive an annual bonus during each fiscal year of her employment at target in the amount of 70% of her base salary, based on the achievement of certain financial targets by the Company, as set forth in the employment agreement. Additionally, Ms. Goldstein is eligible to participate in the Company’s annual long-term incentive compensation program at a level commensurate with the Company’s other senior executives.

The employment agreement also provides for severance benefits upon termination by the Company without cause or a change in control. For more information regarding these severance and change in control benefits, please refer to “Potential Payments Upon Termination or Change in Control” below.

Ms. Goldstein has agreed not to compete with the Company or solicit any of the Company’s customers or personnel during her employment and for one year following any termination of her employment, all on the terms set forth in the employment agreement.

Karl Slatoff

On February 14, 2008, the Company entered into an employment agreement with Mr. Slatoff, pursuant to which Mr. Slatoff initially served as Executive Vice President of the Company. Effective October 25, 2010, Mr. Slatoff was named to the role of Chief Operating Officer of the Company. Effective May 1, 2013, Mr. Slatoff was appointed to the newly created role of President. Pursuant to the agreement, Mr. Slatoff will continue to serve as President of the Company until termination of the 2014 Management Agreement, unless earlier terminated upon his death or resignation, or by the Board of Directors for any reason. Pursuant to the terms of the employment agreement, Mr. Slatoff receives an annual salary of $1.00. Additionally, Mr. Slatoff is eligible to participate in all benefits and plans which the Company may institute from time to time for its executive officers and employees (other than the 401(k) savings plan). The employment agreement with Mr. Slatoff provides that he is not entitled to receive an annual bonus from the Company. The employment agreement does not provide for any continued obligations of the Company following a termination of Mr. Slatoff’s employment other than continued indemnification rights and coverage under the Company’s directors’ and officers’ liability insurance policies.

Mr. Slatoff has agreed not to compete with the Company, nor to solicit any of the Company’s customers or personnel during his employment and for one year following his termination for “cause” or without “good reason,” all on the terms set forth in the employment agreement.

Daniel Emerson

Mr. Emerson serves as Executive Vice President and General Counsel of the Company pursuant to an employment agreement between the Company and Mr. Emerson, dated January 28, 2015, effective as of October 24, 2014. Pursuant to the employment agreement, Mr. Emerson will continue to serve as Executive Vice President and General Counsel of the Company until his employment is terminated by him or the Company in accordance with the provisions of the employment agreement.

Pursuant to the terms of the employment agreement, Mr. Emerson received an annual base salary of $435,000 through March 31, 2016. Mr. Emerson’s base salary increased to $500,000 for fiscal 2017 based on peer benchmarking, as well as Mr. Emerson’s strong individual performance and value to the organization as a key senior leader. On May 23, 2017, the Compensation Committee approved an increase to Mr. Emerson’s base salary, effective April 1, 2017, to $515,000 based in part on peer benchmarking. Mr. Emerson will also be eligible to receive an annual bonus during each fiscal year of his employment at target in the amount of 50% of

 

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his base salary, based on the achievement of certain financial targets by the Company. For fiscal 2018, the Compensation Committee approved a change to Mr. Emerson’s bonus structure so that it will be the same as Ms. Goldstein’s. Additionally, Mr. Emerson is eligible to participate in the Company’s annual long-term incentive compensation program.

The employment agreement also provides for severance benefits upon termination by the Company without cause or a change in control. For more information regarding these severance and change in control benefits, please refer to “Potential Payments Upon Termination or Change in Control” below.

Mr. Emerson has agreed not to solicit any of the Company’s customers or personnel during his employment and for one year following any termination of his employment, all on the terms set forth in the employment agreement.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning shares of restricted stock and RSUs outstanding for each of the NEOs as of March 31, 2017:

 

     Stock Awards  

Name

   Stock
Award
Grant
Date
     Number
of
Shares
or
Units of
Stock
That
Have Not
Vested
(#)(1)
     Market
Value of
Shares or
Units
of Stock
That
Have Not
Vested
($)(2)
     Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares or
Units of
Stock
That
Have Not
Vested
(#)
     Equity
Incentive
Plan
Awards:
Market
Value of
Unearned
Shares
or Units
of Stock
That
Have Not
Vested
($)(2)
 

Strauss Zelnick(3)

     —          —          —          —          —    

Lainie Goldstein

     6/1/2016        9,500        563,065        18,999        1,126,071  
     6/1/2015        34,488        2,044,104        —          —    
     9/23/2014        40,878        2,422,839        —          —    
     11/7/2012        151,267        8,965,595        —          —    

Karl Slatoff(3)

     —          —          —          —          —    

Daniel Emerson

     6/1/2016        9,500        563,065        18,999        1,126,071  
     6/1/2015        34,488        2,044,104        —          —    
     9/17/2014        10,011        593,352        —          —    

 

(1) Time-based awards and performance-based awards with respect to which the performance criteria have been satisfied, in each case made under the 2009 Plan, which time-based awards vest, subject to continuing employment, in three equal annual installments commencing in the year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant and which performance-based awards will vest, if at all, in two equal annual installments commencing in the second year following the year in which such grants were made on a date determined by the Compensation Committee at the time of grant, provided that awards granted on November 7, 2012 vest in six unequal installments over an approximately 65-month period, subject to satisfaction of certain stock price thresholds.
(2) Value determined based on the closing price of the Company’s common stock of $59.27 on March 31, 2017, the final business day of fiscal 2017.
(3)

Messrs. Zelnick and Slatoff have not received grants of stock or option awards. Messrs. Zelnick and Slatoff are partners in ZelnickMedia, to which the Company has previously granted restricted stock, RSUs and options pursuant to the Management Agreements. Of these grants, no options or shares of restricted stock

 

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  remained outstanding and an aggregate of 578,826 RSUs (based on the target number of performance-based RSUs eligible to vest) or 898,526 RSUs (based on the maximum number of performance-based RSUs eligible to vest) remained unvested as of March 31, 2017. The value of the unvested RSUs based on the closing price of the common stock on March 31, 2017 was $34,307,017 (based on the target number of performance-based RSUs eligible to vest) or $53,255,636 (based on the maximum number of performance-based RSUs eligible to vest).

Stock Vested During 2017 Fiscal Year

The following table sets forth information concerning the vesting of shares of restricted stock held by each of the NEOs during fiscal 2017. The value realized from vested restricted stock is deemed to be the market value of the common stock on the date of vesting multiplied by the number of shares.

 

     Stock Awards  

Name

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

Strauss Zelnick(1)

     —          —    

Lainie Goldstein

     174,493        8,921,752  

Karl Slatoff(1)

     —          —    

Daniel Emerson

     31,400        1,193,206  

 

(1) As discussed above, Messrs. Zelnick and Slatoff have not received grants of stock or option awards, but are partners in ZelnickMedia, which has received certain grants. On May 20, 2016, an aggregate of 591,912 shares of restricted stock held by ZelnickMedia vested. The value realized on vesting of such shares of restricted stock was $21,527,839.

Pension Benefits

We do not currently sponsor or maintain any defined benefit pension or retirement plans providing specified retirement payments and benefits for our employees.

Nonqualified Deferred Compensation Plan Benefits

We do not currently sponsor or maintain any nonqualified defined contribution or other nonqualified deferred compensation plans for the benefit of our employees.

Potential Payments Upon Termination or Change in Control

Ms. Goldstein and Mr. Emerson are entitled to receive certain amounts and benefits upon termination of their employment or a change in control pursuant to their employment agreements. Additionally, Ms. Goldstein and Mr. Emerson are eligible to participate in the CIC Severance Plan, to the extent they would be entitled to receive greater amounts and benefits under the CIC Severance Plan than under their employment agreements. Messrs. Zelnick and Slatoff are not entitled to receive directly any severance benefits from the Company upon a termination of employment or change in control.

Employment Agreements

Lainie Goldstein

Pursuant to the terms of Ms. Goldstein’s employment agreement, Ms. Goldstein will be entitled to receive the following severance benefits upon a termination by the Company without cause (including a non-renewal of

 

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the agreement as well as her resignation following certain events that will be deemed a termination without cause): (i) a lump sum payment within 30 days of termination equal to the sum of (w) 1.5 times her then-current base salary, (x) 1.5 times her target bonus of 70% of base salary, (y) a prorated target bonus for the year of termination (equal to 50% of target if such termination occurs during the first half of the year, and 100% of target if such termination occurs during the second half of the year), and (z) any unpaid bonuses earned in respect of prior years; (ii) reimbursement for the cost of continued medical health insurance coverage under COBRA for 18 months (or until Ms. Goldstein becomes entitled to coverage with a subsequent employer); and (iii) immediate vesting in all outstanding and unvested options and shares of restricted stock then held by her. Ms. Goldstein has agreed not to compete with the Company or solicit any of the Company’s customers or personnel during her employment and for one year following any termination of her employment, all on the terms set forth in the employment agreement.

The employment agreement also provides that, upon a change in control of the Company, Ms. Goldstein will be entitled to a retention bonus equal to three months’ base salary upon the closing of the transaction, and three months’ base salary upon the six month anniversary thereof, in each case subject to her continued employment with the Company through the applicable payment date (or an earlier termination by the Company without cause (including a non-renewal of the employment agreement as well as her resignation following certain events that will be deemed a termination without cause)). The employment agreement also provides that any amounts received by her in connection with a change in control will be reduced if, pursuant to the excise tax provisions of the Code relating to “parachute payments,” such reduction would result in a greater after-tax benefit to her.

Daniel Emerson

Pursuant to the terms of Mr. Emerson’s employment agreement, Mr. Emerson will be entitled to receive the following severance benefits following a termination by the Company without cause (including his resignation following certain events that will be deemed a termination without cause): (i) for a period of 12 months following such termination of employment, continuation of his base salary and continued participation in Company welfare benefit plans (including, without limitation, any medical benefits in which he participates) on the same terms and conditions as in effect at the time of the event triggering his entitlement to severance; (ii) immediate vesting of all restricted equity previously granted to him; (iii) subject to the effective date of Mr. Emerson’s termination, payment of the following lump sum amounts: (x) any accrued but unpaid bonuses earned in respect of prior years; (y) if the termination is effective during the first half of the year, a lump sum payment equivalent to the sum of (1) the accrued but unpaid bonus for the prior fiscal year and (2) 50% of the target bonus for which Mr. Emerson would otherwise have been eligible in the current fiscal year; or (z) if such termination occurs during the second half of the year, a lump sum payment equivalent to the sum of (1) the accrued but unpaid bonus for the prior fiscal year and (2) the target bonus for which Mr. Emerson would otherwise have been eligible in the current fiscal year. Mr. Emerson has agreed not to solicit any of the Company’s customers or personnel during his employment and for one year following any termination of his employment, all on the terms set forth in the employment agreement.

CIC Severance Plan

Pursuant to the CIC Severance Plan, certain eligible employees, including Ms. Goldstein and Mr. Emerson may receive certain benefits upon a termination of employment either by the Company without “cause” or voluntarily for “good reason,” in either case during the 12-month period following a change in control of the Company. The benefits that Ms. Goldstein and Mr. Emerson would be entitled to receive upon a qualifying termination of employment under the CIC Severance Plan consist of the following:

 

   

a cash severance payment equal to 150% of the sum of the NEO’s annual base salary and target annual bonus or incentive opportunity;

 

   

continued health benefits for a period of 18 months; and

 

   

full and immediate vesting of all outstanding and unvested equity awards.

 

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For purposes of the CIC Severance Plan, Ms. Goldstein and Mr. Emerson will be deemed to have resigned for “good reason” if the resignation occurs or occurred, as applicable, in connection with any of the events specified in the employment agreements, such that the resignation would be or would have been, as applicable, tantamount to a termination without cause under the terms of the employment agreements. For purposes of the CIC Severance Plan, “cause” generally means a participant’s continued failure to substantially perform the participant’s duties after receipt of notice from the Company, a participant’s criminal conviction which is demonstrably injurious to the Company, a participant’s felony conviction, a participant’s gross negligence which affects the Company or a participant’s failure to adhere to the Company’s written policies or to cooperate in any investigation or inquiry involving the Company.

Severance benefits provided under the CIC Severance Plan are subject to reduction to avoid any excise tax on “parachute payments” under Section 280G of the Code if the employee would benefit from such reduction as opposed to receiving the full severance benefits and paying the excise tax. All employees who accept severance payments and, if applicable, the continued health coverage under the CIC Severance Plan are required to sign a release and are subject to restrictions on the solicitation of employees and customers of the Company for a period of six months following termination as well as a non-disparagement obligation. In addition, all employees who accept any benefits under the CIC Severance Plan are subject to a duty to cooperate reasonably with the Company in any litigation relating to matters in which the employee was personally involved. We do not provide for any tax gross-ups in respect of any excise taxes on parachute payments.

The tables below set forth amounts to be paid or benefits received by those NEOs entitled to receive any amounts or benefits upon termination of their employment or a change in control, assuming the applicable triggering event occurred on March 31, 2017.

 

Lainie Goldstein

   Termination
Without
Cause ($)(1)
     Death or
Disability ($)
     Change in
Control
Termination
Without Cause
or for Good
Reason ($)
    Change in
Control
Without
Termination ($)
 

Cash Payment

     1,725,126        —          1,725,126       —    

Continuation of Medical Insurance

     15,229        —          15,229       —    

Acceleration of Equity Awards(2)

     15,121,674        15,121,674        15,121,674       —    

Pro-rated Bonus

     473,564        473,564        710,346       —    

Stay Bonus

     —          —          338,260       338,260  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Termination Benefits

     17,335,593        15,595,238        17,910,635 (3)      338,260 (3) 
  

 

 

    

 

 

    

 

 

   

 

 

 

 

Daniel Emerson

   Termination
Without
Cause ($)(1)
     Death or
Disability ($)
     Change in
Control
Termination
Without Cause
or for Good
Reason ($)
    Change in
Control
Without
Termination ($)
 

Cash Payment

     500,000        —          750,000       —    

Continuation of Welfare Benefits

     11,527        —          28,823       —    

Acceleration of Equity Awards(2)

     4,326,591        —          4,326,591       —    

Pro-rated Bonus

     250,000        —          375,000       —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Termination Benefits

     5,088,118        —          5,480,414 (3)      —    
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Under Ms. Goldstein’s and Mr. Emerson’s employment agreements, a termination without cause includes a resignation following certain events so as to be deemed a termination by the Company without cause and for Ms. Goldstein, the Company’s non-renewal of the employment agreement. For purposes of Ms. Goldstein’s and Mr. Emerson’s employment agreements, “cause” generally means such person’s continued failure to substantially perform duties under the employment agreement after receipt of notice from the Company,

 

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  such person’s criminal conviction which is demonstrably injurious to the Company, such person’s felony conviction, such person’s gross negligence which significantly affects the Company or such person’s material failure to adhere to the Company’s material written policies or to cooperate in any investigation or inquiry involving the Company. For purposes of Ms. Goldstein’s and Mr. Emerson’s employment agreements, Ms. Goldstein’s or Mr. Emerson’s resignation in connection with the following events will be tantamount to a termination without cause: a material breach of the employment agreement by the Company, a material diminution in such person’s title, status, position or responsibilities, the Company’s failure to timely pay compensation due under the employment agreement, a material reduction in such person’s salary or any reduction in target bonus, assignment of duties to such person which are materially inconsistent with the duties set forth in the employment agreement, relocation of such person’s principal place of employment beyond 10 miles from its then-current location or the failure of any successor to assume the Company’s obligations under the employment agreement.
(2) The value of the equity awards is calculated by multiplying the number of shares of restricted stock and RSUs that accelerate by the per share closing price of the Company’s common stock of $59.27 on March 31, 2017.
(3) In the event that the total amounts payable in connection with a change in control to Ms. Goldstein or Mr. Emerson would trigger an excise tax on “parachute payments” under Section 280G of the Code, then the total amounts payable in the scenarios illustrated in this table would be reduced in order to avoid triggering the excise tax if they would benefit from such reduction as opposed to paying the excise tax.

Compensation of Directors During 2017 Fiscal Year

The Compensation Committee reviews and makes recommendations to the Board regarding the form and amount of compensation for non-employee directors. Typically, on an annual basis, the Committee considers a board compensation study by its independent compensation consultant to support the Committee in its deliberations.

Such compensation may include, but is not limited to, the following elements: board or committee retainer, board or committee meeting fees, committee chair retainer or fees, equity compensation, benefits and perquisites.

 

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All directors, other than Mr. Zelnick, are regarded as non-employee directors. The key elements of the compensation payable to our non-employee directors are as follows:

 

Component   Value of Award
Under Current
Policy
  Notes

Annual Retainer

  For Each Non-Employee  Director   $250,000   $190,000 restricted stock(1) / $60,000 cash

Lead

Independent Director Additional Fees

 

For Lead Independent Director

  $200,000   $100,000 restricted stock / $100,000 cash

Committee Fees

 

Audit

Committee

  Chair   $35,000  
   

Other

Members

  $17,500  
  Compensation Committee   Chair   $25,000  
   

Other

Members

  $12,500  
  Corporate Governance Committee   Chair   $20,000  
   

Other

Members

  $10,000  
  Executive Committee   Chair   N/A   Lead Independent Director Services as Executive Committee Chair for no additional fee
   

Other

Independent

Members

  $25,000  

 

(1) On December 10, 2015, the Compensation Committee recommended, and the Board of Directors approved, effective for fiscal 2017, an increase to the restricted stock portion of the annual retainer to $190,000. On December 8, 2016, the Compensation Committee recommended, and the Board of Directors approved, effective for fiscal 2018, an increase to the restricted stock portion of the annual retainer to $200,000.

Each non-employee director may make an irrevocable election to receive 100% of annual retainer and committee fees in shares of restricted stock. For fiscal 2017, Mr. Bowman received 100% of these fees in restricted stock.

The restricted stock portion of the annual retainer is granted to the non-employee directors in four equal quarterly installments and such shares vest on the first anniversary of the grant date (discussed below). Grants of restricted stock are generally made on the fifth trading day following the filing of the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable. The number of shares of restricted stock granted is determined by dividing the dollar value of the restricted stock to be delivered by the average of the closing prices of our common stock on the ten trading days prior to the fifth trading day following the filing of the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable.

Under the existing Take-Two Interactive Software, Inc. 2009 Stock Incentive Plan and under the proposed Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan, the maximum value of awards granted to non-employee directors in any one calendar year, together with any cash fees paid to such directors during such calendar year in respect of such director’s service as a member of the Board of Directors during such year, may not, absent extraordinary circumstances, exceed $750,000 in total value. As determined by the Compensation

 

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Committee in its discretion, this limit may be increased for a non-executive chair of the Board of Directors or, in extraordinary circumstances, for other individual non-employee directors; provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.

Reimbursement of Certain Expenses. Non-employee directors are reimbursed for travel expenses to attend Board of Directors and committee meetings and to attend director education seminars in accordance with policies approved from time to time.

Director Stock Ownership Requirements. The Board of Directors updated its existing stock ownership requirements for non-employee directors of the Company in December 2014. Under these requirements, non-employee directors are required to own shares of common stock having a value equal to five times the annual cash retainer. Before December 2014, non-employee directors were required to own shares of common stock having a value equal to three times the annual cash retainer. Current non-employee directors are required to achieve such stock position within five years after the date of the adoption of the requirements and future non-employee directors shall achieve such ownership position within five years after the date of their election to the Board of Directors. Information regarding executive officer stock ownership requirements is set forth in this Proxy Statement under “Compensation Discussion and Analysis.” Each independent director serving on the Board of Directors for more than one year actually owned shares in excess of the requirements as of record date.

Director Compensation Table

The following table sets forth information concerning the compensation of the Company’s non-employee directors during fiscal 2017.

 

Name

   Fees Earned or
Paid in Cash
($)
    Stock
Awards
($)(1)
     Total
($)
 

Robert A. Bowman

     95,000 (2)      190,000        285,000  

Michael Dornemann

     200,000       290,000        490,000  

J Moses

     92,500       190,000        282,500  

Michael Sheresky

     120,000       190,000        310,000  

LaVerne Srinivasan(3)

     2,917       —          2,917  

Susan Tolson

     77,500       190,000        267,500  

Strauss Zelnick

     —         —          —    

 

(1) Represents the aggregate grant date fair value of awards granted to our directors during fiscal 2017, determined under FASB ASC Topic 718, Compensation—Stock Compensation. For additional information with respect to stock awards granted during fiscal 2017, see Note 15 under the heading “Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for fiscal 2017. The amounts above reflect the grant date fair value for these awards, excluding the accounting effect of any estimate of future forfeitures, and do not necessarily correspond to the actual value that might be recognized by the directors. As of March 31, 2017, Messrs. Bowman, Dornemann, Moses and Sheresky, and Mses. Srinivasan and Tolson held 4,322, 6,597, 4,322, 4,322, 0, and 4,322 outstanding unvested restricted stock awards, respectively.
(2) For fiscal 2017, Mr. Bowman elected to receive all of his annual retainer and committee fees in shares of common stock. In accordance with SEC regulations, these amounts are reported in the table as fees earned or paid in cash, rather than as stock awards. On May 26, 2016, August 12, 2016, November 10, 2016 and February 15, 2017, respectively, 644, 581, 508, and 427 shares of stock were granted to Mr. Bowman, with grant date fair values of $38.65, $41.34, $46.94, and $59.44, respectively, as computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation.
(3)

Ms. Srinivasan was appointed to the Board of Directors effective March 17, 2017. On June 1, 2017, Ms. Srinivasan received a grant of 792 shares of restricted stock with a grant date fair value of $61,871.04,

 

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  as computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation. 108 of such shares relate to Mr. Srinivasan’s tenure as a director during fiscal 2017.

Compensation Committee Interlocks and Insider Participation

During fiscal 2017, Messrs. Dornemann, Moses and Sheresky served as members of the Compensation Committee. During fiscal 2017:

 

   

none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries;

 

   

none of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company was a participant and the amount involved exceeded $120,000;

 

   

none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board) of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee;

 

   

none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and

 

   

none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as a director on the Board of Directors.

 

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VOTING SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of July 17, 2017 (unless otherwise noted) relating to the beneficial ownership of shares of the common stock by (i) each person or entity who is known by the Company to own beneficially five percent or more of the outstanding common stock, (ii) each current director, (iii) each director nominee, (iv) each of the NEOs and (v) all current directors and executive officers as a group.

 

Name and Address

of Beneficial Owner(1)

   Number of Shares of
Common Stock
Beneficially Owned(2)
     Percentage of Outstanding
Common Stock
Beneficially Owned
 

BlackRock, Inc.(3)

     10,459,579        9.89

The Vanguard Group, Inc.(4)

     7,360,571        6.96

Strauss Zelnick(5)

     897,100        *  

Karl Slatoff(6)

     602,217        *  

Lainie Goldstein(7)

     410,019        *  

Daniel Emerson(8)

     98,461        *  

Robert A. Bowman

     132,951        *  

J Moses

     12,437        *  

Michael Sheresky

     68,417        *  

Michael Dornemann

     16,394        *  

LaVerne Srinivasan

     792        *  

Susan Tolson

     17,851        *  

All directors and executive officers as a group (10 persons)(9)

     1,654,422        1.55

 

* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is Take-Two Interactive Software, Inc., 622 Broadway, New York, New York 10012. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055. The address for Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
(2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. A person is deemed to be the beneficial owner of securities that may be acquired by such person within 60 days after July 17, 2017 and is not deemed to be the beneficial owner of securities that may not be acquired within 60 days after July 17, 2017. Each beneficial owner’s percentage ownership is determined by assuming that exercisable securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days after July 17, 2017 have been exercised.
(3) Based on information contained in a report on Schedule 13G/A filed with the SEC on January 17, 2017.
(4) Based on information contained in a report on Schedule 13G/A filed with the SEC on February 10, 2017. The Vanguard Group, Inc. reported that Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 162,082 shares of common stock as a result of its serving as investment manager of collective trust accounts and that Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 13,917 shares of common stock as a result of its serving as investment manager of Australian investment offerings.
(5)

Mr. Zelnick is a partner at ZelnickMedia. The shares listed include 184,883 shares of common stock held by Zelnick/Belzberg Living Trust (such shares are indirectly held by Mr. Zelnick), 110,000 shares of common stock held by the Wendy Jay Belzberg 2012 Family Trust (such shares are indirectly held by Mr. Zelnick) and 602,217 RSUs held by ZelnickMedia (such units are not held individually by Mr. Zelnick). Mr. Zelnick disclaims beneficial ownership of the securities held by each of the Zelnick/Belzberg Living Trust, the Wendy Jay Belzberg 2012 Family Trust and ZelnickMedia except to the extent of his pecuniary interest therein. The 602,217 RSUs held by ZelnickMedia consist of (a) unvested RSUs granted to ZelnickMedia on May 20, 2016 settleable for up to 372,935 shares of common stock and (b) unvested RSUs granted to ZelnickMedia on May 25, 2017 settleable for up to 229,282 shares of common stock. A portion of each

 

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  grant is subject to time-based vesting and the other portion is subject to performance-based vesting. The 2016 grant will vest, if at all, on April 1, 2018, and the 2017 grant will vest, if at all, on April 4, 2019, subject in each case to acceleration or forfeiture under certain circumstances.
(6) Mr. Slatoff is a partner at ZelnickMedia. The shares listed include 602,217 RSUs held by ZelnickMedia (such units are not held individually by Mr. Slatoff). Mr. Slatoff disclaims beneficial ownership of the securities held by ZelnickMedia except to the extent of his pecuniary interest therein. The 602,217 RSUs held by ZelnickMedia consist of (a) unvested RSUs granted to ZelnickMedia on May 20, 2016 settleable for up to 372,935 shares of common stock and (b) unvested RSUs granted to ZelnickMedia on May 25, 2017 settleable for up to 229,282 shares of common stock. A portion of each grant is subject to time-based vesting and the other portion is subject to performance-based vesting. The 2016 grant will vest, if at all, on April 1, 2018, and the 2017 grant will vest, if at all, on April 4, 2019, subject in each case to acceleration or forfeiture under certain circumstances.
(7) The shares listed include (i) 160,291 shares of common stock held by Ms. Goldstein, (ii) 151,267 unvested performance-based restricted stock awards held by Ms. Goldstein, (iii) 15,429 unvested time-based RSUs held by Ms. Goldstein, and (iv) 83,032 unvested performance-based RSUs held by Ms. Goldstein. Such unvested awards will vest, or fail to vest, in accordance with the terms of the applicable award agreements.
(8) The shares listed include (i) 15,429 unvested time-based RSUs held by Mr. Emerson, and (ii) 83,032 unvested performance-based RSUs held by Mr. Emerson. Such unvested awards will vest, or fail to vest, in accordance with the terms of the applicable award agreements.
(9) The 602,217 RSUs held by ZelnickMedia, and beneficially owned by Messrs. Zelnick and Slatoff, are only included once.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

The Company is party to a Management Agreement, dated as of March 10, 2014, and effective April 1, 2014 (the “2014 Management Agreement”), with ZelnickMedia. The 2014 Management Agreement replaced the Company’s previous Management Agreement with ZelnickMedia, dated as of May 20, 2011 (the “2011 Management Agreement”), which in turn had superseded the Company’s original Management Agreement with ZelnickMedia, dated as of March 30, 2007, as amended as of July 27, 2007 and February 14, 2008 (the “Original Management Agreement”). Upon its effectiveness, the 2014 Management Agreement superseded and replaced the 2011 Management Agreement and the Original Management Agreement, except as otherwise contemplated in the 2014 Management Agreement.

Under the terms of the 2014 Management Agreement, ZelnickMedia provides financial and management consulting services to the Company.

Term and Personnel. The 2014 Management Agreement provides for a term through March 31, 2019, unless earlier terminated in accordance with its terms. Under the 2014 Management Agreement, ZelnickMedia continues to provide certain individuals as it deems appropriate for the performance of the 2014 Management Agreement. Specifically (i) Mr. Zelnick serves as Executive Chairman of the Board of Directors and CEO of the Company, (ii) Mr. Slatoff serves as the Company’s President, and (iii) other ZelnickMedia personnel as appropriate provide services to the Company on a project-by-project, as needed basis.

If Mr. Zelnick or any other employee of ZelnickMedia acting in an executive capacity for the Company pursuant to the 2014 Management Agreement is unable or unavailable to serve in such capacity (other than due to a termination by the Company without Cause or their resignation for Good Reason (as such terms are defined in such person’s employment agreement with the Company or, in the case of Mr. Zelnick, in the 2014 Management Agreement)), and ZelnickMedia is unable to provide a qualified individual within a reasonable period of time to serve in such capacity who is reasonably satisfactory to the Board of Directors, then the Company may fill such position with a person not affiliated with ZelnickMedia and deduct the costs of such person’s compensation from ZelnickMedia’s compensation under the 2014 Management Agreement (with such deduction limited to no more than 60% of the aggregate compensation payable to ZelnickMedia if such person replaces Mr. Zelnick and no more than 40% of the aggregate compensation payable to ZelnickMedia if such person replaces Mr. Slatoff).

Management Fee and Annual Bonus Opportunity. Under the 2014 Management Agreement, the Company pays a monthly management fee equal to $247,500 per month ($2,970,000 annualized). The management fee will not be increased or decreased during the term of the 2014 Management Agreement. In addition to the monthly management fee, ZelnickMedia receives an annual bonus, subject to the achievement by the Company of certain performance thresholds in respect of each of the five fiscal years ending March 31, 2015, 2016, 2017, 2018 and 2019. For each fiscal year, the annual bonus opportunity ranges from $0 (at 80% of the Target, as defined in the 2014 Management Agreement) to $4,752,000 (at 150% of the Target or greater). The annual bonus opportunity will not be increased or decreased during the term of the 2014 Management Agreement. If the 2014 Management Agreement is terminated by the Company without Cause (as defined in the 2014 Management Agreement) or by ZelnickMedia for Good Reason (as defined in the 2014 Management Agreement) (whether before or after a Change in Control (as defined in the 2014 Management Agreement)), ZelnickMedia is entitled to be paid on the date of termination an amount equal to the sum of (i) the earned but unpaid portion of the management fee, (ii) any accrued but unpaid annual bonus for a completed fiscal year and (ii) three times the sum of the per annum management fee plus the Target bonus amount.

Expense Reimbursement. Under the 2014 Management Agreement, ZelnickMedia is entitled to the reimbursement of reasonable out-of-pocket expenses in connection with the 2014 Management Agreement and the rendering of services thereunder.

 

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Limits on Compensation. Under the 2014 Management Agreement, no more than 60% of the aggregate compensation payable to ZelnickMedia under the 2014 Management Agreement (whether in the form of the management fee, the annual bonus or the RSU awards) shall be received by or conveyed to Mr. Zelnick (or such other employee of ZelnickMedia that serves as Executive Chairman and CEO of the Company) and no more than 40% of such aggregate compensation shall be received by or conveyed to Mr. Slatoff (or such other employee of ZelnickMedia that serves as the President of the Company).

Restrictions on Sale of Vested Stock. Under the 2014 Management Agreement, prior to March 31, 2019 (or earlier in the event of a Change in Control) ZelnickMedia and any Subject Person (as defined in the 2014 Management Agreement) are prohibited from selling or otherwise disposing of any shares of common stock of the Company, if the Market Value (as defined in the 2014 Management Agreement) of all shares of common stock of the Company (including any options, restricted stock and RSUs), after giving effect to such proposed sale or other disposition, owned by ZelnickMedia and each Subject Person in the aggregate as of the trading day immediately preceding the date of the proposed sale or disposition, would be less than five times (5x) the per annum management fee (excluding any bonuses).

Awards under the 2014 Management Agreement

Under the 2014 Management Agreement, as further described below, the Company has granted RSUs to ZelnickMedia on April 1, 2014 (the “2014 Restricted Units”), May 20, 2015 (the “2015 Restricted Units”), May 20, 2016 (the “2016 Restricted Units”) and May 25, 2017 (the “2017 Restricted Units”, and together with the 2014 Restricted Units, the 2015 Restricted Units and the 2016 Restricted Units, the “Restricted Units”) under the 2009 Plan. The 2014 Restricted Units, comprised of both time-based and performance-based RSUs as described below, were granted pursuant to the terms of a Restricted Unit Agreement, dated April 1, 2014, as amended, by and between the Company and ZelnickMedia (the “2014 Restricted Unit Agreement”). The 2015 Restricted Units, comprised of both time-based and performance-based RSUs as described below, were granted pursuant to the terms of a Restricted Unit Agreement, dated May 20, 2015, as amended, by and between the Company and ZelnickMedia (the “2015 Restricted Unit Agreement”). The 2016 Restricted Units, comprised of both time-based and performance-based RSUs as described below, were granted pursuant to the terms of a Restricted Unit Agreement, dated May 20, 2016, by and between the Company and ZelnickMedia (the “2016 Restricted Unit Agreement”). The 2017 Restricted Units, comprised of both time-based and performance-based RSUs as described below, were granted pursuant to the terms of a Restricted Unit Agreement, dated May 25, 2017, by and between the Company and ZelnickMedia (the “2017 Restricted Unit Agreement”, and together with the 2014 Restricted Unit Agreement, the 2015 Restricted Unit Agreement and the 2016 Restricted Unit Agreement, the “Restricted Unit Agreements”). Under the 2014 Management Agreement, the Company, in its discretion, may grant additional annual equity awards to ZelnickMedia over the course of the term of the 2014 Management Agreement.

2014 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 178,654 time-based RSUs (such number determined by dividing $3,850,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2014), all of which units vested on May 20, 2016 (the “2014 Time-Based Award”).

Performance-Based Award. The Company granted ZelnickMedia 440,836 performance-based RSUs (the “2014 Performance Award”), which represents the maximum number of performance-based RSUs that are eligible to vest (with the target number of performance-based RSUs of 220,418 determined by dividing $4,750,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2014). The 2014 Performance Award was divided into the following three categories based on the applicable performance-vesting criteria (as described in the 2014 Restricted Unit Agreement): New IP Performance-Based Units, Major IP Performance-Based Units, and TSR

 

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Performance-Based Units. The results and payout levels for the 2014 Performance Award, which vested, or failed to vest, on May 20, 2016, are as follows:

 

2014 Performance Award Vested
(#)
  2014 Performance Award Forfeited
(#)
Based on
Achievement of
New IP
Performance-
Vesting Criteria
  Based on
Achievement of
Major IP
Performance-
Vesting Criteria
 

Based on
Achievement of
TSR

Performance-
Vesting Criteria

  Based on
Achievement of
New IP
Performance-
Vesting Criteria
  Based on
Achievement of
Major IP
Performance-
Vesting Criteria
 

Based on
Achievement of
TSR

Performance-
Vesting Criteria

27,526

  55,104   330,628   27,578   0   0

2015 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 151,575 time-based RSUs (such number determined by dividing $3,850,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2015), all of which units will vested on April 4, 2017 (the “2015 Time-Based Award”).

Performance-Based Award. The Company granted ZelnickMedia 374,016 performance-based RSUs (the “2015 Performance Award”), which represents the maximum number of performance-based RSUs that are eligible to vest (with the target number of performance-based RSUs of 187,008 determined by dividing $4,750,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2015). The 2015 Performance Award was divided into the following three categories based on the applicable performance-vesting criteria (as described in the 2015 Restricted Unit Agreement): New IP Performance-Based Units, Major IP Performance-Based Units, and TSR Performance-Based Units. The results and payout levels for the 2015 Performance Award, which vested, or failed to vest, on April 4, 2017, are as follows:

 

2015 Performance Award Vested
(#)
  2015 Performance Award Forfeited
(#)

Based on
Achievement of
New IP

Performance-

Vesting Criteria

  Based on
Achievement of
Major IP
Performance-
Vesting Criteria
 

Based on
Achievement of
TSR

Performance-
Vesting Criteria

  Based on
Achievement of
New IP
Performance-
Vesting Criteria
  Based on
Achievement of
Major IP
Performance-
Vesting Criteria
 

Based on
Achievement of
TSR

Performance-
Vesting Criteria

0

  46,752   280,512   46,752   0   0

2016 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 107,551 time-based RSUs (such number determined by dividing $3,850,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2016), which units will vest on April 1, 2018, provided that the 2014 Management Agreement has not been terminated prior to such date (the “2016 Time-Based Award”). Notwithstanding the foregoing, the 2016 Time-Based Award will immediately vest in full if the 2014 Management Agreement is terminated by the Company without Cause or by ZelnickMedia for Good Reason. Conversely, ZelnickMedia will forfeit to the Company all 2016 Restricted Units under the 2016 Time-Based Award if the 2014 Management Agreement is terminated by the Company for Cause or by ZelnickMedia without Good Reason prior to April 1, 2018.

Performance-Based Award. The Company granted ZelnickMedia 265,384 performance-based RSUs (the “2016 Performance Award”), which represents the maximum number of performance-based RSUs that are eligible to vest (with the target number of performance-based RSUs of 132,692 determined by dividing $4,750,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2016) and which have been divided into three categories of vesting as follows: (i) on April 1, 2018, a number of New IP Performance-Based Units (as defined in the 2016

 

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Restricted Unit Agreement) will vest equal to the product of (x) the target number of New IP Performance-Based Units in such vesting tranche (16,587) multiplied by (y) the New IP Vesting Percentage (as defined in the 2016 Restricted Unit Agreement) on the trading day immediately preceding April 1, 2018, which ranges from 0% to 200%, (ii) on April 1, 2018, a number of Major IP Performance-Based Units (as defined in the 2016 Restricted Unit Agreement) will vest equal to the product of (x) the target number of Major IP Performance-Based Units in such vesting tranche (16,586) multiplied by (y) the Major IP Vesting Percentage (as defined the 2016 Restricted Unit Agreement) on the trading day immediately preceding April 1, 2018, which ranges from 0% to 200%, and (iii) on April 1, 2018, a number of TSR Performance-Based Units (as defined in the 2016 Restricted Unit Agreement) will vest equal to the product of (x) the target number of TSR Performance-Based Units in such vesting tranche (99,519) multiplied by (y) the TSR Vesting Percentage (as defined in the 2016 Restricted Unit Agreement) on the trading day immediately preceding April 1, 2018, which ranges from 0% to 200%. See “Compensation Discussion and Analysis—NEO Compensation Structure and Pay-for-Performance Principles—Compensation of Mr. Zelnick and Mr. Slatoff” for more information on the performance-based vesting criteria.

In the event that any portion of the 2016 Performance Award will not have vested as of April 1, 2018 or upon a termination of the 2014 Management Agreement by the Company for Cause or by ZelnickMedia without Good Reason, ZelnickMedia will forfeit to the Company any and all 2016 Restricted Units that have not vested as of such date.

2017 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 66,122 time-based RSUs (such number determined by dividing $3,850,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2017), which units will vest on April 4, 2019, provided that the 2014 Management Agreement has not been terminated prior to such date (the “2017 Time-Based Award”, and together with the 2014 Time-Based Award, the 2015 Time-Based Award and the 2016 Time-Based Award, the “Time-Based Awards”). Notwithstanding the foregoing, the 2017 Time-Based Award will immediately vest in full if the 2014 Management Agreement is terminated by the Company without Cause or by ZelnickMedia for Good Reason. Conversely, ZelnickMedia will forfeit to the Company all 2017 Restricted Units under the 2017 Time-Based Award if the 2014 Management Agreement is terminated by the Company for Cause or by ZelnickMedia without Good Reason prior to April 4, 2019.

Performance-Based Award. The Company granted ZelnickMedia 163,160 performance-based RSUs (the “2017 Performance Award”, and together with the 2014 Performance Award, the 2015 Performance Award and the 2016 Performance Award, the “Performance Awards”), which represents the maximum number of performance-based RSUs that are eligible to vest (with the target number of performance-based RSUs of 81,580 determined by dividing $4,750,000 by the average of the closing prices of the Company’s common stock for each trading day during the 10 trading day period immediately prior to April 1, 2017) and which have been divided into three categories of vesting as follows: (i) on April 4, 2019, a number of New IP Performance-Based Units (as defined in the 2017 Restricted Unit Agreement) will vest equal to the product of (x) the target number of New IP Performance-Based Units in such vesting tranche (10,198) multiplied by (y) the New IP Vesting Percentage (as defined in the 2017 Restricted Unit Agreement) on March 29, 2019, which ranges from 0% to 200%, (ii) on April 4, 2019, a number of Major IP Performance-Based Units (as defined in the 2017 Restricted Unit Agreement) will vest equal to the product of (x) the target number of Major IP Performance-Based Units in such vesting tranche (10,197) multiplied by (y) the Major IP Vesting Percentage (as defined the 2017 Restricted Unit Agreement) on March 29, 2019, which ranges from 0% to 200%, and (iii) on April 4, 2019, a number of TSR Performance-Based Units (as defined in the 2017 Restricted Unit Agreement) will vest equal to the product of (x) the target number of TSR Performance-Based Units in such vesting tranche (61,185) multiplied by (y) the TSR Vesting Percentage (as defined in the 2017 Restricted Unit Agreement) on March 29, 2019, which ranges from 0% to 200%.

In the event that any portion of the 2017 Performance Award will not have vested as of April 4, 2019 or upon a termination of the 2014 Management Agreement by the Company for Cause or by ZelnickMedia without

 

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Good Reason, ZelnickMedia will forfeit to the Company any and all 2017 Restricted Units that have not vested as of such date.

Treatment of Awards.

Upon a termination of the 2014 Management Agreement by the Company without Cause or by ZelnickMedia for Good Reason, any then-unvested restricted stock or units granted pursuant to the Performance Awards (including any restricted stock or units granted to ZelnickMedia during the term of the 2014 Management Agreement on or after April 1, 2014) will vest on the assumption that the applicable performance measure was achieved at the target level of performance for the applicable performance period or, prior to a Change in Control (as defined in the 2014 Management Agreement), for TSR Performance-Based Units (as defined in the applicable Restricted Unit Agreement), based on the actual level of performance achieved for each applicable performance measure as of the date of termination.

If the Company and ZelnickMedia fail to enter into a new management agreement on substantially similar terms in the aggregate as those provided under the 2014 Management Agreement upon the expiration of the term of the 2014 Management Agreement or otherwise fail to agree to extend the term of the 2014 Management Agreement, all unvested time-vesting restricted stock or units granted during the term of the 2014 Management Agreement on or after April 1, 2014 will vest upon such expiration and all then-unvested performance-vesting restricted stock or units will vest based on the assumption that the applicable performance measure was achieved at the target level of performance for the applicable performance period or, prior to a Change in Control, for TSR Performance-Based Units (as defined in the applicable Restricted Unit Agreement), based on the actual level of performance achieved for each applicable performance measure as of the date of termination.

If a Change in Control occurs during the term of the 2014 Management Agreement, the 2014 Management Agreement will not automatically terminate and all unvested RSUs granted pursuant to the applicable Restricted Unit Agreement will vest as set forth in the applicable Restricted Unit Agreement, except that any restricted stock or units granted to ZelnickMedia on or after April 1, 2014 will vest upon the earlier to occur of (x) a termination of the 2014 Management Agreement by the Company without Cause or by ZelnickMedia for Good Reason or (y) the second anniversary of the applicable date of grant, and, with respect to any performance-based restricted stock or units, in each case, based on the assumption of that the applicable performance measure was achieved at the target level of performance for the applicable performance period. As of March 31, 2017, all shares of restricted stock or units granted prior to April 1, 2014 (including any awards granted pursuant to the 2011 Management Agreement or the Original Management Agreement) have vested and/or have been forfeited pursuant to their terms.

Settlement of Restricted Units.

Pursuant to the 2014 Management Agreement, the Company will have the right to elect to settle the RSUs granted to ZelnickMedia pursuant to the 2014 Management Agreement in shares of the Company’s common stock that will be issued pursuant to the 2009 Plan.

Registration Statement. Pursuant to the 2014 Management Agreement, within 45 days following the request of ZelnickMedia, the Company will file a Registration Statement on Form S-3 registering for resale any of the shares of the Company’s common stock issuable pursuant to awards granted to ZelnickMedia under the Restricted Unit Agreements. The Company filed a registration statement on Form S-3 on May 25, 2017 covering such shares.

The foregoing descriptions of the 2014 Management Agreement and the Restricted Unit Agreements (including the Time-Based Awards and the Performance Awards issuable to ZelnickMedia thereunder) are only a summary and are qualified in their entirety by reference to the full text of the 2014 Management Agreement (and the 2014 Restricted Unit Agreement attached as Exhibit A thereto), which is attached as Exhibit 10.1 to the

 

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Company’s Current Report on Form 8-K dated March 10, 2014 and incorporated herein by reference, the 2015 Restricted Unit Agreement, which is attached as Exhibit 10.2 to the Company’s Registration Statement on Form S-3 dated May 20, 2015 and incorporated herein by reference, the 2016 Restricted Unit Agreement, which is attached as Exhibit 10.2 to the Company’s Registration Statement on Form S-3 dated May 20, 2016 and incorporated herein by reference, and the 2017 Restricted Unit Agreement, which is attached as Exhibit 10.2 to the Company’s Registration Statement on Form S-3 dated May 25, 2017 and incorporated herein by reference.

Awards Under the 2011 Management Agreement

Restricted Stock Awards. Pursuant to the 2011 Management Agreement, the Company issued time-based and performance-based restricted stock to ZelnickMedia in November 2011, as further described below.

Time-Based Award. The Company granted ZelnickMedia a restricted stock award of 1,100,000 shares of common stock that vested in four equal installments on each of the first, second and third anniversaries of April 1, 2011, and then on May 20, 2015.

Performance-Based Award. The Company granted ZelnickMedia a restricted stock award of 1,650,000 shares of common stock. Twenty-five percent of such award vested on each of the first three anniversaries of April 1, 2011 and the remaining twenty-five percent vested, in the aggregate, on May 20, May 21, May 22 and May 26, 2015, respectively (which aggregate number of shares that vested on May 20, May 21, May 22 and May 26, 2015, respectively, equal to the number of shares eligible to vest on each of the first three anniversaries on April 1, 2011), respectively, based on the Company’s total shareholder return relative to the total shareholder return of the companies that constitute the NASDAQ Composite Index (the “Peer Companies”) during each of the four fiscal years of the Company ending March 31, 2012, 2013, 2014, and 2015. To earn all of the shares, the Company needed to perform at the 75th percentile, or top quartile, of the NASDAQ Composite Index.

On April 1, 2012, the first vesting tranche included 305,250 shares, reflecting the Company’s total shareholder return relative to the total shareholder return of the Peer Companies in the 62nd percentile. On April 1, 2013, no vesting of shares occurred reflecting the Company’s total shareholder return relative to the total shareholder return of the Peer Companies below the 50th percentile. On April 1, 2014, 486,750 shares vested, reflecting the Company’s total shareholder return relative to the total shareholder return of the Peer Companies in the 59th percentile for the third vesting tranche (using reference date of April 1, 2013), and the 50th percentile for the previously unvested portions of the first and second tranches (using reference date of April 1, 2011). On May 20, May 21, May 22 and May 26, 2015, an aggregate of 833,250 shares vested, reflecting the Company’s total shareholder return relative to the total shareholder return of the Peer Companies in the 91st percentile for the fourth vesting tranche (using reference date of April 1, 2014), and the 74th percentile for the previously unvested portions of the first, second and third tranches (using reference date of April 1, 2011).

Registration Statement. Pursuant to the 2011 Management Agreement, within 45 days following the request of ZelnickMedia, the Company will file a Registration Statement on Form S-3 registering for resale any shares of the Company’s common stock issuable pursuant to awards granted to ZelnickMedia under the 2011 Management Agreement. The Company filed a registration statement on Form S-3 on May 20, 2015 covering the resale of certain of such shares.

The foregoing descriptions of the 2011 Management Agreement and the related restricted stock award agreements are only a summary and are qualified in their entirety by reference to the full text of the 2011 Management Agreement (and the restricted stock award agreements attached as Exhibit A thereto), which is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 24, 2011 and incorporated herein by reference, and the amendments to the restricted stock award agreements, which are filed as Exhibits 10.2 and 10.3 to the Company’s Quarterly Report on Form 10-Q filed on February 6, 2015 and Exhibits 10.5 and 10.6 to the Company’s Registration Statement on Form S-3 dated May 20, 2015 and incorporated herein by reference.

 

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Policy on Transactions with Related Persons

The Board of Directors has adopted a policy requiring that any transaction: (1) involving the Company or any of its subsidiaries and (2) in which one of our directors, nominees for director, executive officers, or greater than five percent shareholders, or their immediate family members, have a direct or indirect material interest; be approved or ratified by a majority of the independent directors of the full Board of Directors.

In determining whether to approve or ratify any such transaction, the independent directors of the Board of Directors must consider, in addition to other factors deemed appropriate, whether the transaction is on terms no less favorable to the Company than those involving unrelated parties. No director may participate in any review, approval or ratification of any transaction if the director, or an immediate family member of such director, has a direct or indirect material interest in the transaction.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE

The members of our Board of Directors, our executive officers and persons who beneficially own more than 10% of our outstanding common stock are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, which requires them to file reports with respect to their ownership of our common stock and their transactions in such common stock. Based solely upon a review of the copies of Section 16(a) reports that we have received from such persons or entities for transactions in our common stock and their common stock holdings for fiscal 2017, we believe that all reporting requirements under Section 16(a) for such fiscal year were met in a timely manner by our directors, executive officers and persons who beneficially own more than 10% of our outstanding common stock.

 

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ADOPTION OF THE 2017 STOCK INCENTIVE PLAN

(Proposal 4)

 

 

EXECUTIVE SUMMARY OF PROPOSAL

 

  Summary of Proposal:   

The Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan (the “2017 Plan”) will allow the Company to make future stock- and cash-based awards to eligible participants in furtherance of the Company’s broader compensation strategy and philosophy. The Company is requesting shareholder approval of the 2017 Plan in order to comply with the shareholder approval requirements of:

 

•  The NASDAQ Stock Market for the listing of shares of the Company’s common stock;

 

•  Section 162(m) of the Code to allow the grant of cash incentive and stock awards intended to qualify as performance-based compensation; and

 

•  Section 422 of the Code to allow the grant of incentive stock options.

 
  Number of Shares Reserved for Issuance under the 2017 Plan:    7,596,111 (consisting of a new share request of 5,200,000, plus 2,396,111 shares that remained available for grant under the 2009 Plan as of June 30, 2017)  
     The proposed share reserve will be reduced on a share-for-share basis by any new equity awards granted under the 2009 Plan after June 30, 2017.  
  Number of Shares Available for Grant under the 2009 Plan:    2,396,111 as of June 30, 2017  
  Number of Shares Subject to Outstanding Awards under the 2009 Plan:    3,079,887 as of June 30, 2017  
  Number of Total Shares of Common Stock Outstanding:    105,185,756 as of June 30, 2017  
  Uses of Equity Compensation:   

•  Equity is an essential tool to attract and retain highly-skilled creative talent, and it aligns the interests of creative employees with shareholders.

 
    

 

•  Our creative employees at our wholly-owned labels, Rockstar Games and 2K, drive our business, are critical to our continued success, and help us build shareholder value.

 
    

 

•  Equity incentives are used throughout Take-Two, beyond the executive level.

 
    

 

•  Almost two-thirds of our employees work in our development studios and have highly specialized technical capabilities to develop software titles for multiple platforms.

 
    

 

•  Two-thirds of equity grants to non-ZelnickMedia NEOs, and more than half of the equity grants to ZelnickMedia, are performance-based and, therefore, at risk.

 

 

 

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•   In fiscal 2017, 52% of equity awards were used to retain creative talent.

 
    

LOGO

 
  Certain Plan Highlights:   

•   Limits on awards to individual participants

 
    

 

•   Non-liberal recycling of shares used to satisfy tax withholding obligations or as payment for the exercise price or base price for stock options and SARs

 
    

 

•   No evergreen provision for share reserve

 
    

 

•   Dividends and dividend equivalents on awards do not vest and are not paid until the award is earned and vested

 
    

 

•   Annual compensation limits for non-employee directors

 
    

 

•   No repricing of underwater stock options or SARs without shareholder approval

 
    

 

•   No discounted stock options or SARs

 
    

 

•   Clawback provisions

 
    

 

•   Non-liberal change in control provisions

 
    

 

•   No automatic grants

 
    

 

•   Double-trigger acceleration of vesting for equity assumed or substituted for in connection with a change in control

 

 

Background

On July 26, 2017, the Board of Directors adopted the 2017 Plan, subject to approval by the Company’s shareholders. If approved by the shareholders, the 2017 Plan will become effective and will succeed the 2009 Plan. The 2009 Plan will be terminated effective upon shareholder approval of the 2017 Plan and from and after the date of such approval no additional awards may be made under the 2009 Plan. This proposal will not affect the terms and conditions of any outstanding awards granted under the 2009 Plan. If the 2017 Plan is not approved by the shareholders, the 2017 Plan will be null and void, but the 2009 Plan will remain in full force and effect in accordance with its terms and conditions until February 18, 2019. No awards will be granted pursuant to the 2017 Plan until it is approved by the Company’s shareholders.

Under the 2017 Plan, the Company will be authorized to issue up to 5,200,000 shares of common stock, plus 2,396,111 shares of common stock available for grant under the 2009 Plan as of June 30, 2017 (subject to

 

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reduction on a share-for-share basis by the number of shares of common stock that become subject to grants under the 2009 Plan after June 30, 2017). In addition, the number of shares of common stock available for issuance under the 2017 Plan will be subject to increase by any shares of common stock subject to an award outstanding under the 2009 Plan after June 30, 2017 (a “Prior Plan Award”) that becomes eligible for reuse pursuant to the share recycling provisions of the 2017 Plan, as described below. Stock-based awards assumed or substituted by the Company or its affiliates as part of a corporate transaction (including from an entity that the Company merges with or into, acquires, or engages with in a similar corporate transaction) will not count against the number of shares of common stock reserved and available for issuance pursuant to the 2017 Plan (except as may be required by Section 422 of the Code). In addition, shares of common stock will not be deemed to have been issued pursuant to the 2017 Plan with respect to any portion of an award that is settled in cash.

The Board of Directors believes that approval of the 2017 Plan is essential to the Company’s continued success as it remains committed to the Company’s historical philosophy of incentivizing employees by tying a significant portion of their compensation to the interests of the Company’s shareholders. If the 2017 Plan is not approved, the Company would be at a significant disadvantage relative to its competitors for recruiting, retaining and motivating the high caliber individuals critical to our growth and profitability and could be forced to increase cash compensation, thereby reducing resources available to meet our business needs. Since our inception, the Board has sought to align the interests of our employees with the long-term interests of shareholders through, among other things, a determination to place a significant emphasis on equity-based compensation as a component of our compensation programs. The Board of Directors believes that equity compensation of the type available for grant under the 2017 Plan, a cash- and stock-based incentive plan, furthers the Company’s goal of creating long-term value for the Company’s shareholders by fostering an ownership culture that encourages a focus on long-term performance, retention, and shareholder value-creation, and exposes the Company’s employees to economic diminishment if the Company’s share performance lags.

Alignment of the 2017 Plan with the Interests of the Company and Shareholders

The Board of Directors believes that using equity to retain and motivate the Company’s key employees is critical to the achievement of the Company’s long-term goals and it considered the following factors, among other things, when adopting the 2017 Plan:

 

   

Allows us to recruit and retain top talent. The Board of Directors believes that the 2017 Plan will serve a critical role in attracting and retaining high caliber individuals essential to the Company’s success.

 

   

Allows us to align participant and shareholder interests. The Board of Directors believes that stock ownership by employees, consultants and non-employee directors provides performance incentives and fosters long-term commitment to our benefit and to the benefit of our shareholders.

 

   

Allows us to pay for performance. The Board of Directors believes that equity compensation, by its very nature, is performance-based compensation, and that the 2017 Plan reflects our pay-for-performance philosophy and motivates our employees, consultants and non-employee directors to enhance our growth and profitability.

 

   

Allows us to secure tax deductions for awards to certain executives. As discussed below, the 2017 Plan allows us to grant qualified performance-based cash- and stock-based awards to certain executives that are fully deductible under Section 162(m) of the Code.

 

   

Allows us to maintain one single comprehensive long-term incentive plan. The Board of Directors believes that the 2017 Plan will best serve our long-term goals.

Key Features of the 2017 Plan

The 2017 Plan and the Company’s related governance practices and policies include many features that are designed to protect shareholder interests. A summary of these features follows, and a more detailed description of

 

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the features is included under the heading “Summary of the 2017 Plan” below. The summaries in this proposal do not provide a complete description of all the provisions of the 2017 Plan and are qualified in their entirety by reference to the full text of the 2017 Plan, which is attached to this Proxy Statement as Annex B.

 

   

Annual limits on awards to individual participants. The 2017 Plan contains limits on the number of certain types of awards that may be granted to individual participants in a given fiscal year, as discussed below.

 

   

Non-liberal recycling for stock options and stock appreciation rights. The 2017 Plan provides that, with respect to stock options and stock appreciation rights, shares used to satisfy tax withholding obligations or as payment for the exercise price or base price will constitute shares delivered to the participant and will not be available for future grant under the 2017 Plan.

 

   

Provides for a fixed reserve of shares of common stock. The number of shares of common stock available for grant under the 2017 Plan is fixed and will not automatically increase because of an “evergreen” feature; shareholder approval is required to issue any additional shares, allowing the Company’s shareholders to have direct input on our equity compensation program.

 

   

Limits annual compensation for non-employee directors. The 2017 Plan imposes a $750,000 annual limit on the cash and equity compensation payable to the Company’s non-employee directors, subject to certain limited exceptions.

 

   

Requires minimum vesting periods for certain awards. Awards of stock options and stock appreciation rights under the 2017 Plan must vest over a period of not less than one year from the date of grant.

 

   

Provides for limited terms. The maximum term of a stock option or stock appreciation right under the 2017 Plan is 10 years.

 

   

Prohibits repricing of stock options and stock appreciation rights. The 2017 Plan prohibits the repricing of stock options and stock appreciation rights, as well as the cash buyout of underwater awards, without prior shareholder approval.

 

   

No discounted stock options or stock appreciation rights. All stock options and stock appreciation rights must have an exercise price or base price equal to or greater than the fair market value of the underlying shares on the date of grant.

 

   

Double-trigger vesting. Pursuant to the 2017 Plan, the vesting of awards that are assumed or substituted in connection with a change in control only accelerates as a result of the change in control if a participant experiences a qualifying termination within one year following the change in control.

 

   

No dividends or dividend equivalents on unearned awards. The 2017 Plan also prohibits the current payment of dividends or dividend equivalent rights on unvested or unearned awards, including performance awards.

 

   

Prohibits certain detrimental activities by participants. The 2017 Plan provides that awards will be subject to forfeiture or recovery in the event that a participant engages in detrimental activities, as discussed below.

 

   

Non-liberal definition of change in control. The change in control definition contained in the 2017 Plan is not a “liberal” definition that would be triggered on mere shareholder approval of a transaction.

 

   

Clawback. Awards granted under the 2017 Plan are subject to the Company’s clawback and/or recoupment policies.

 

   

Limitation on amendments. Amendments to the 2017 Plan must be approved by the Company’s shareholders if shareholder approval is required by applicable law or the applicable rules of the national securities exchange on which the Company’s shares of common stock are principally listed or if the amendment would diminish the prohibitions on repricing stock options or stock appreciation rights.

 

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Performance awards. The 2017 Plan allows for the grant of qualified performance-based awards intended to be fully deductible under Section 162(m) of the Code as well as other performance-based awards.

 

   

No automatic grants. The 2017 Plan does not provide for automatic grants to any participant.

 

   

Independent Compensation Committee. Our Compensation Committee consists entirely of independent directors.

 

   

No tax gross-ups. The 2017 Plan does not provide for any tax gross-ups.

Key Data

The following table includes information regarding the Company’s outstanding awards and shares of common stock available for future awards under the 2009 Plan as of June 30, 2017 (and without giving effect to approval of the 2017 Plan under this proposal):

 

     2009 Plan  

Total shares of common stock underlying outstanding stock options

     0  

Weighted average exercise price of outstanding stock options

     N/A  

Weighted average remaining contractual life of outstanding stock options

     N/A  

Total shares subject to outstanding, unvested full-value awards

     3,079,887  
  

 

 

 

Total shares of common stock currently available for grant

     2,396,111  
  

 

 

 

The Compensation Committee carefully monitors the Company’s annual burn rate and total fully-diluted overhang by granting only the number of stock-based awards that it believes is necessary to attract, reward and retain key employees, officers and other service providers. Burn rate, or run rate, refers to how fast a company uses the supply of shares authorized for issuance under its stock incentive plan. Over the last three fiscal years, the Company has maintained an average burn rate of only 5.67% of shares of common stock outstanding per year. The following table shows the Company’s burn rate percentage over the past three fiscal years:

 

Key Equity Metric

   2017     2016     2015  

Burn Rate (1)

     3.59     6.93     6.50

 

(1) Burn rate is calculated by dividing the number of shares of common stock subject to equity awards granted during the fiscal year by the weighted average number of shares of common stock outstanding during the fiscal year.

After giving effect to the proposed new share reserve, the total fully-diluted overhang as of June 30, 2017, would be 9.21%. In this context, fully-diluted overhang is calculated as the sum of grants outstanding and shares available for future awards (numerator) divided by the sum of the numerator and basic common shares outstanding, with all data effective as of June 30, 2017.

We expect that the share reserve under the 2017 Plan, if this proposal is approved by our shareholders, will be sufficient for awards for approximately three years. Expectations regarding future share usage could be impacted by a number of factors such as award type mix; hiring and promotion activity at the executive level; the rate at which shares are returned to the 2017 Plan’s reserve upon the awards’ expiration, forfeiture or cash settlement; the future performance of our stock price; the consequences of acquiring other companies; and other factors. While we believe that the assumptions we used are reasonable, future share usage may differ from current expectations.

Summary of the 2017 Plan

The following is a summary of certain material features of the 2017 Plan.

 

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Purpose

The 2017 Plan is designed to assist the Company in attracting, retaining, motivating and rewarding certain of the Company’s key employees, officers, directors and other service providers, and to promote the creation of long-term value for the Company’s shareholders by closely aligning the interests of such individuals with those of the shareholders.

Administration

The 2017 Plan will be administered by the Company’s Compensation Committee (the “Committee”), which will have the authority to designate participants, grant awards, determine the number of shares of common stock to be covered by awards, determine the terms and conditions of any awards, including when an award may be granted, and construe and interpret the 2017 Plan and related award agreements. The Committee has the authority to accelerate the vesting of outstanding awards at any time and for any reason, including upon a “corporate event” (as defined in the 2017 Plan), subject to the 2017 Plan’s double-trigger vesting limitation, or in the event of certain types of terminations of employment. To the extent permitted by applicable law, the Committee is permitted to delegate its authority under the 2017 Plan to officers or employees of the Company, although any award granted to any person who is not an employee of the Company (including any non-employee director of the Company or its affiliates), who is subject to Section 16 of the Exchange Act, or who is granted an award that is intended to qualify as performance-based compensation under Section 162(m) of the Code must be expressly approved by the Committee.

Shares of Stock Available for Issuance Under the 2017 Plan and Limits on Awards

Under the 2017 Plan, the Company will be authorized to issue a maximum of 5,200,000 shares of common stock plus 2,396,111 shares of common stock available for grant under the 2009 Plan as of June 30, 2017 (subject to reduction on a share-for-share basis by the number of shares of Stock that become subject to grants under the 2009 Plan after June 30, 2017). In addition, the number of shares of common stock available for issuance under the 2017 Plan will be subject to increase by any shares of common stock subject to a Prior Plan Award that becomes eligible for reuse pursuant to the share recycling provisions of the 2017 Plan, as described below. Stock-based awards assumed or substituted by the Company or its affiliates as part of a corporate transaction (including from an entity that the Company merges with or into, acquires, or engages with in a similar corporate transaction) will not count against the number of shares of common stock reserved and available for issuance pursuant to the 2017 Plan except as may be required by Section 422 of the Code. In addition, shares of common stock will not be deemed to have been issued pursuant to the 2017 Plan with respect to any portion of an award that is settled in cash.

If any award granted under the 2017 Plan or any Prior Plan Award expires or is canceled, forfeited, settled in cash or otherwise terminated without delivery of shares to a participant, the undelivered shares will again become available for awards under the 2017 Plan. In addition, the number of shares available for awards under the 2017 Plan will be increased by any shares tendered by a participant or withheld by the Company to pay any tax withholding obligation with respect to any “full value award” (as such term is defined in the 2017 Plan) or any full value Prior Plan Award. The following shares will be deemed to constitute shares delivered to a participant and will not be deemed to again be available for delivery under the 2017 Plan: (i) shares tendered by the participant or withheld by the Company in payment of the exercise price of a stock option under the 2017 Plan or the Prior Plan, (ii) shares tendered by the participant or withheld by the Company to satisfy any tax withholding obligation with respect to “exercisable awards” (as such term is defined in the 2017 Plan) or options or stock appreciation rights under the Prior Plan, (iii) shares subject to a stock appreciation right under the 2017 Plan or the Prior Plan that are not issued in connection with its stock settlement on exercise thereof, and (iv) shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options under the 2017 Plan or the Prior Plan.

Under the 2017 Plan, the maximum value of awards granted to non-employee directors in any one calendar year, together with any cash fees paid to such directors during such calendar year in respect of the Director’s

 

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service as a member of the Board during such year, may not, absent extraordinary circumstances, exceed $750,000 in total value. As determined by the Committee in its discretion, this limit may be increased for a non-executive chair of the Board of Directors or, in extraordinary circumstances, for other individual non-employee directors; provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.

Awards and the shares authorized under the 2017 Plan are subject to adjustment as described below under “Changes in Capital Structure.”

To the extent an award is intended to qualify as exempt performance-based compensation under Section 162(m) of the Code, the maximum number of shares of common stock subject to stock options, performance awards or stock appreciation rights that may be granted to any individual in any one calendar year may not exceed 1,000,000 per type of award and 2,000,000 in the aggregate. Similarly, the maximum value of a performance award that is denominated in dollars (as opposed to shares) and that is intended to qualify as performance-based compensation under Section 162(m) of the Code that may be granted to any individual in any one year may not exceed $8,000,000 (and for any performance period in excess of one year, $8,000,000, multiplied by a fraction, the numerator of which is the number of months in the performance period, and the denominator of which is 12). The maximum number of shares of common stock reserved for issuance under the 2017 Plan that may be issued or transferred upon exercise or settlement of incentive stock options is 5,200,000 shares.

Awards and the shares of common stock authorized under the 2017 Plan, as well as any individual share limits, are subject to adjustment as described below under “Changes in Capital Structure.”

The closing price of a share of common stock as reported on The NASDAQ Stock Market on July 17, 2017 was $76.10 per share of common stock.

Eligibility

The following individuals will be eligible to participate in the 2017 Plan:

 

   

employees and officers of the Company or its affiliates,

 

   

non-employee director of the Company or its affiliates;

 

   

other persons who provide bona fide services to the Company or its affiliates as a consultant or advisor, which are not in connection with the offer and sale of securities in a capital-raising transaction, and do not, directly or indirectly, promote or maintain a market for the Company’s or its affiliates’ securities, and who are designated as eligible by the Committee, and

 

   

prospective employees of the Company or its affiliates, although such individuals may not receive any payment or exercise any rights relating to awards until they have actually commenced employment.

As of the date of this proposal, approximately 1,800 employees, officers, directors and other individuals are eligible to participate in the 2017 Plan.

Grants of Awards

Pursuant to the 2017 Plan, the Committee may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (including cash-based performance awards), and other stock-based awards. Awards will vest in accordance with the terms of the applicable award agreement. In addition, other than with respect to a “substitute award” (as such term is defined in the 2017 Plan), and except with respect to a maximum of 5% of the shares authorized for grant under the 2017 Plan, no award of options or stock appreciation rights granted under the 2017 Plan may vest over a period that is

 

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less than one year from the date of grant, except that the foregoing minimum vesting period will not apply in the event of a participant’s termination of employment without “cause,” a participant’s termination of employment due to “retirement” (as such term is defined in the 2017 Plan), death or disability, or a “corporate event,” subject to the 2017 Plan’s double-trigger vesting limitation.

Stock Options. The Company has not recently granted stock options to anyone, including the Company’s “named executive officers,” and has no present intention to grant stock options in the near term. However, to maintain maximum flexibility, the 2017 Plan allows the grant of both incentive stock options, within the meaning of Section 422(b) of the Code, and non-qualified stock options.

A stock option granted under the 2017 Plan provides a participant with the right to purchase, within a specified period of time, a stated number of shares of common stock at the price specified in the applicable award agreement. The exercise price applicable to a stock option will be set by the Committee at the time of grant and will not be less than the fair market value of a share of common stock on the date of grant.

The maximum term of a stock option granted under the 2017 Plan is 10 years from the date of grant (or five years in the case of an incentive stock option granted to a 10% shareholder). Payment of the exercise price of a stock option may be made in a manner approved by the Committee, which may include any of the following payment methods: cash, shares of common stock, pursuant to a broker-assisted cashless exercise in accordance with procedures approved by the Committee, pursuant to a delivery of a notice of “net exercise,” or in any other form of consideration approved by the Committee.

The 2017 Plan provides that participants whose employment is terminated (i) for “cause” (as such term is defined in the 2017 Plan), or (ii) due to the participant’s voluntary termination (including “retirement”) after the occurrence of an event that would be grounds for a termination for “cause,” will forfeit all of their stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested stock options and retain their vested stock options, and will have one year (in the case of a termination by reason of “retirement,” death or disability) or 90 days (in all other cases) following their termination date to exercise their vested stock options. In addition, if a participant dies within any such post-termination exercise period, all vested stock options will be exercisable by the person(s) to whom such participant’s rights under the stock options pass by will or by the applicable laws of descent and distribution until 12 months following the date of death. The Committee may also exercise its discretion to provide for different treatment of stock options upon termination.

No incentive stock options may be granted under the 2017 Plan following the 10th anniversary of the earlier of (i) the date the 2017 Plan was adopted by the Board of Directors and (ii) the date the shareholders of the Company approve the 2017 Plan.

Stock Appreciation Rights. The Company has not recently granted stock appreciation rights to anyone, including the Company’s “named executive officers,” and has no present intention to grant stock appreciation rights in the near term. However, to maintain maximum flexibility, the 2017 Plan allows the grant of stock appreciation rights. A stock appreciation right is a conditional right to receive an amount equal to the value of the appreciation in the shares of common stock over a specified period. Stock appreciation rights may be settled in shares of common stock, cash or other property, as specified in the award agreement or as determined by the Committee. The base price applicable to a stock appreciation right will be set by the Committee at the time of grant and will not be less than the fair market value of a share of common stock on the date of grant.

The maximum term of a stock appreciation right granted under the 2017 Plan is 10 years from the date of grant. Upon exercise of a stock appreciation right, payment in respect of such stock appreciation right may be made in cash, shares of common stock, or property as specified in the applicable award agreement or as determined by the Committee, in each case having a value in respect of each share of common stock underlying the portion of the stock appreciation right so exercised, equal to the difference between the base price of such stock appreciation right and the fair market value of a share of common stock on the exercise date.

 

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The 2017 Plan provides that participants whose employment is terminated (i) for “cause,” or (ii) due to the participant’s voluntary termination (including “retirement”) after the occurrence of an event that would be grounds for a termination for “cause,” will forfeit all of their stock appreciation rights, whether or not vested. Participants terminated for any other reason will forfeit their unvested stock appreciation rights and retain their vested stock appreciation rights, and will have one year (in the case of a termination by reason of “retirement,” death or disability) or 90 days (in all other cases) following their termination date to exercise their vested stock appreciation rights. In addition, if a participant dies within any such post-termination exercise period, all vested stock appreciation rights will be exercisable by the person(s) to whom such participant’s rights under the stock appreciation rights pass by will or by the applicable laws of descent and distribution until 12 months following the date of death. The Committee may also exercise its discretion to provide for different treatment of stock appreciation rights upon termination.

Restricted Stock. An award of restricted stock is a grant of shares of common stock which are subject to limitations on transfer during a restricted period established in the applicable award agreement. Holders of restricted stock will generally have the rights and privileges of a shareholder with respect to their restricted stock.

Except as otherwise provided by the Committee, in the event a participant is terminated for any reason, the vesting of the participant’s restricted stock will cease, and as soon as practicable following the termination, the Company will repurchase all of such participant’s unvested shares of restricted stock at a purchase price equal to the original purchase price paid for the restricted stock, or if the original purchase price was $0, the unvested shares of restricted stock will be forfeited to the Company by the participant for no consideration.

Restricted Stock Units. A restricted stock unit is a notional unit representing the right to receive one share of common stock (or the cash value of one share of common stock) on a specified settlement date. When a participant satisfies the conditions of the restricted stock unit award established by the Committee in the applicable award agreement, the award will be settled in shares of common stock, cash or property, as determined by the Committee in its discretion.

Except as otherwise provided by the Committee, in the event a participant is terminated for any reason, the vesting with respect to the participant’s restricted stock units will cease, all of the participant’s unvested restricted stock units will be forfeited for no consideration as of the date of such termination, and any shares of common stock remaining undelivered with respect to the participant’s vested restricted stock units will be delivered on the delivery date or dates specified in the applicable award agreement.

Performance Awards. A performance award (which may be classified as a performance share, performance unit or cash award) represents the right to receive certain amounts based on the achievement of pre-determined performance goals during a designated performance period. The terms of each performance award will be set forth in the applicable award agreement. The Committee will be responsible for setting the applicable performance goals, which will be limited to specific levels of or increases in one or more of the following business criteria (alone or in combination with any other criterion, whether gross or net, before or after taxes, and/or before or after other adjustments, as determined by the Committee): (i) earnings, including net earnings, total earnings, operating earnings, earnings growth, operating income, net income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or unusual, non-recurring or special items, adjusted earnings before or after taxes, earnings before or after interest, depreciation, amortization, or unusual, non-recurring or special items, book value per share (which may exclude nonrecurring items), tangible book value or growth in tangible book value per share; (ii) pre-tax income or after-tax income; (iii) earnings per share (basic or diluted); (iv) operating profit; gross profit, gross profit return on investment, or gross margin return on investment; (v) revenue, net revenue, gross revenue, revenue growth, or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, return on invested capital, return on equity, financial return ratios, or internal rates of return; (vii) returns on sales or revenues; (viii) operating expenses or reduction in expenses; (ix) stock price appreciation; (x) cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investment (discounted or otherwise), net cash provided by operations or

 

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cash flow in excess of cost of capital, working capital turnover; (xi) implementation or completion of critical projects or processes; (xii) economic value created; (xiii) balance sheet measurements; (xiv) cumulative earnings per share growth; (xv) operating margin, profit margin, or gross margin; (xvi) stock price or total shareholder return; (xvii) cost or expense targets, reductions and savings, productivity and efficiencies; (xviii) sales or sales growth; (xix) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, market share, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures, and similar transactions, and budget comparisons; (xx) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, the formation of joint ventures, research or development collaborations, and the completion of other corporate transactions, (xxi) billings, billings growth, or rate of billings growth; (xxii) underwriting income or profit; (xxiii) loss ratio or combined ratio; (xxiv) economic net income; (xxv) adjusted net income, including net income after adding back or subtracting the net effect from deferral in net revenues and related costs of goods sold, impact of business reorganization, one-time gains or losses on long-term investments, and after adding back stock based compensation, interest, depreciation, amortization and tax expenses; (xxvi) specified objectives with regard to limiting the level of increase in all or a portion of the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be established by the Committee in its sole discretion; (xxvii) the growth in the value of an investment in the Company’s common stock assuming the reinvestment of dividends; and (xxviii) to the extent that an award is not intended to qualify as performance-based compensation under Section 162(m) of the Code, or is an option or a stock appreciation right, other measures of performance selected by the Committee. The business criteria may be combined with cost of capital, assets, invested capital and shareholders’ equity to form an appropriate measure of performance and will have any reasonable definitions that the Committee may specify.

The business criteria for performance goals under the 2017 Plan must be re-approved by the Company’s shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the business criteria for performance goals in order for awards (other than stock options and stock appreciation rights) to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code. Assuming approval of this proposal, the material terms of the performance goals under the 2017 Plan will need to be re-approved by shareholders at the Company’s 2022 Annual Meeting of Shareholders.

Performance goals may be established on a Company-wide basis, project or geographical basis or, as the context permits, with respect to one or more business units, divisions, lines of business or business segments, subsidiaries, products, regions, or other operational units or departments of the Company (or in combination thereof) or may be related to the performance of an individual participant and may be expressed in absolute terms, or relative or comparative to (i) current internal targets or budgets, (ii) the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units), (iii) the performance of one or more similarly situated companies, (iv) the performance of an index covering multiple companies, or (v) other external measures of the selected performance criteria. Performance goals may be in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.

The Committee, in its sole discretion, will make appropriate adjustments in the method of calculating the attainment of applicable performance goals to provide for objectively determinable adjustments, modifications or amendments to any of the business criteria described above, including, without limitation, for one or more of the following items of gain, loss, profit or expense: (i) determined to be items of an unusual nature or of infrequency of occurrence or non-recurring in nature; (ii) related to changes in accounting principles under “generally accepted accounting principles” or tax laws; (iii) related to currency fluctuations; (iv) related to financing activities (e.g., effect on earnings per share of issuing convertible debt securities); (v) related to restructuring, divestitures, productivity initiatives or new business initiatives; (vi) related to discontinued operations that do not

 

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qualify as a segment of business under “generally accepted accounting principles”; (vii) attributable to the business operations of any entity acquired by the Company during the fiscal year; (viii) non-operating items; and (ix) acquisition or divestiture expenses. However, in no event will any adjustment be made if the performance award is intended to qualify as performance-based compensation under Section 162(m) of the Code and such adjustment would cause the award to fail to so qualify.

Performance awards that have been earned as a result of the relevant performance goals being achieved may be paid in the form of cash, common stock or other awards under the 2017 Plan (or some combination thereof). Except as otherwise provided by the Committee, if a participant is terminated for any reason prior to the end of an applicable performance period, the participant will forfeit all performance awards held by such participant. A participant will be eligible to earn a performance award only while the participant is employed by or rendering services to the Company.

Other Stock-Based Awards. The 2017 Plan authorizes the Committee to grant other awards that may be denominated in, payable in, valued in, or otherwise related to the Company’s common stock. Such awards and the terms applicable to such awards will be set forth in award agreements.

Treatment of Dividends and Dividend Equivalents on Unvested Awards. The 2017 Plan provides that, with respect to any award that provides for or includes a right to dividends or dividend equivalents, if dividends are declared during the period that an equity award is outstanding, such dividends (or dividend equivalents) will either (i) not be paid or credited with respect to such award or (ii) be accumulated but remain subject to vesting requirement(s) to the same extent as the applicable award and will only be paid at the time or times such vesting requirement(s) are satisfied. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld. No dividends or dividend equivalents will be paid on options or stock appreciation rights.

Detrimental Activity. Unless otherwise determined by the Committee at the time of grant, the award agreements will provide that (i) in the event that a participant engages in “detrimental activity” (as such term is defined in the 2017 Plan) prior to the vesting of any “full value award” or the exercise of any “exercisable award,” all awards held by such participant will terminate and expire, (ii) as a condition of the exercise of an “exercisable award,” a participant will be required to certify in a manner acceptable to the Company (or shall be deemed to have certified) that the participant is in compliance with the terms and conditions of the 2017 Plan and that the participant has not engaged in, and does not intend to engage in, any “detrimental activity,” and (iii) in the event the participant engages in “detrimental activity” during the one-year period commencing on the later of (a) the date a “full value award” vests or the date an “exercisable award” is exercised, or (b) the date of the participant’s termination date, the Company will be entitled to recover from the participant at any time within one year after such date, and the participant will pay over to the Company, an amount equal to any gain realized (whether at the time of vesting, exercise or thereafter).

Clawback; Sub-Plans. All awards granted under the 2017 Plan will be subject to incentive compensation clawback and recoupment policies implemented by the Board of Directors (or a committee or subcommittee of the Board of Directors) from time to time, in addition to the recoupment provisions relating to a participant’s “detrimental activity.” In addition, the Committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the 2017 Plan by individuals who are non-U.S. nationals or are primarily employed or providing services outside the United States, and may modify the terms of any awards granted to such participants in a manner deemed by the Committee to be necessary or appropriate in order that such awards conform with the laws of the country or countries where such participants are located.

No Repricing of Awards. No awards may be repriced without shareholder approval. For purposes of the 2017 Plan, “repricing” means any of the following: (i) changing the terms of the award to lower its exercise price or base price (other than on account of capital adjustments as described below under “Changes in Capital Structure”), (ii) any other action that is treated as a repricing under “generally accepted accounting principles,”

 

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and (iii) repurchasing for cash or canceling an award in exchange for another award at a time when its exercise price or base price is greater than the fair market value of the underlying common stock.

Changes in Capital Structure

In the event of (i) any change in the Company’s outstanding common stock or capital structure by reason of stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, spinoffs, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in capitalization, (ii) the declaration of any extraordinary dividend, or (iii) any change in applicable laws or circumstances that results or could result in the substantial dilution or enlargement of participants’ rights under the 2017 Plan, the Committee will equitably and proportionately adjust or substitute, as determined by the Committee, in its sole discretion, the aggregate number of shares of common stock that may be granted pursuant to awards, the number of common stock covered by outstanding awards under the 2017 Plan, the per-share price of common stock underlying outstanding awards under the 2017 Plan, and, if applicable, the performance objectives that must be achieved before such performance-based award shall become earned. The Committee may, in its discretion, provide that an adjustment take the form of a cash payment to the holder of an outstanding award with respect to all or part of an outstanding award, which payment will be subject to such terms and conditions (including timing of payment(s), vesting and forfeiture conditions) as the Committee may determine in its sole discretion.

Corporate Events

For purposes of the 2017 Plan, a “corporate event” means:

 

   

a merger, amalgamation, or consolidation involving the Company in which the Company is not the surviving corporation,

 

   

a merger, amalgamation, or consolidation involving the Company in which the Company is the surviving corporation but the holders of common stock receive securities of another corporation or other property or cash,

 

   

a “change in control”, or

 

   

a reorganization, dissolution or liquidation of the Company.

Pursuant to the 2017 Plan, in connection with a corporate event, the Committee may take any of the following actions:

 

   

require that outstanding awards be assumed or substituted in connection with such event,

 

   

accelerate the vesting of any outstanding awards not assumed or substituted in connection with such event, subject to the consummation of such event; provided that any awards that vest subject to the achievement of performance criteria will be deemed earned (i) based on actual performance through the date of the corporate event or (ii) at the target level (or if no target is specified, the maximum level), in the event actual performance cannot be measured through the date of the corporate event, in each case, with respect to any unexpired performance periods or performance periods for which satisfaction of the performance criteria or other material terms for the applicable performance period has not been certified by the Committee prior to the date of the corporate event,

 

   

cancel outstanding awards not assumed or substituted in connection with such event upon the consummation of such event (whether vested or unvested) and provide award holders with the per-share consideration being received by the Company’s shareholders in connection with such event in exchange for their awards (or, with respect to a cash award, the amount payable pursuant to the award),

 

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cancel all outstanding “exercisable awards” (as such term is defined in the 2017 Plan), whether vested or unvested, not assumed or substituted in connection with such event as of the consummation of such event, and provide the holder at least 20 days to exercise each such “exercisable award” canceled prior to the consummation of such event, or

 

   

replace outstanding awards with a cash incentive program that preserves the value of the replaced awards and contains identical vesting conditions.

Pursuant to the 2017 Plan, no award agreement will provide that the vesting, payment, purchase or distribution of any award that is assumed or substituted in connection with a “change in control” will be accelerated by reason of a “change in control” for any participant unless the participant’s employment is involuntarily terminated during the one-year period commencing on the “change in control.” For this purpose, a participant’s termination will be deemed to have been involuntarily terminated as a result of “change in control” if a participant (i) is involuntarily terminated other than for “cause” (including the participant’s resignation for “good reason” (or similar term)), as defined in the applicable service agreement between the participant and the Company or in a change in control, retention, severance or similar plan defining such terms in which the participant participates or (ii) is terminated under circumstances which entitle the participant to mandatory severance payment(s) pursuant to applicable law.

Non-Transferability of Awards

Awards are generally non-transferable other than by will or the laws of descent and distribution; provided, however, that except with respect to incentive stock options, awards and a participant’s rights under the 2017 Plan are transferable for no value to the extent provided in an award agreement or otherwise determined at any time by the Committee.

Termination and Amendment

The Board of Directors or the Committee may amend or terminate the 2017 Plan at any time, except that no amendment may, without shareholder approval, violate the shareholder approval requirements of the national securities exchange on which the shares of common stock are principally listed. Unless sooner terminated, the 2017 Plan will terminate on the day before the 10th anniversary of the date the shareholders of the Company approve the 2017 Plan.

Certain U.S. Federal Income Tax Consequences

The following is a brief discussion of certain U.S. federal income tax consequences for awards granted under the 2017 Plan. The 2017 Plan is not subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and it is not, nor is it intended to be, qualified under Section 401(a) of the Code. This discussion is based on current law, is not intended to constitute tax advice, and does not address all aspects of U.S. federal income taxation that may be relevant to a particular participant in light of his or her personal circumstances and does not describe foreign, state, or local tax consequences, which may be substantially different. Holders of awards under the 2017 Plan are encouraged to consult with their own tax advisors.

Non-Qualified Stock Options and Stock Appreciation Rights. With respect to non-qualified stock options and stock appreciation rights, (i) no income is realized by a participant at the time the award is granted; (ii) generally, at exercise, ordinary income is realized by the participant in an amount equal to the difference between the exercise or base price paid for the stock and the fair market value of the stock on the date of exercise, and the participant’s employer is generally entitled to a tax deduction in the same amount subject to applicable tax withholding requirements; and (iii) upon a subsequent sale of the stock received on exercise, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the stock has been held, and no deduction will be allowed to such participant’s employer.

 

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Incentive Stock Options. No income is realized by a participant upon the grant or exercise of an incentive stock option, however, such participant will generally be required to include the excess of the fair market value of the stock at exercise over the exercise price in his or her alternative minimum taxable income. If shares of stock are issued to a participant pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares of stock is made by such participant within two years after the date of grant or within one year after the transfer of such shares of stock to such participant, then (i) upon sale of such shares of stock, any amount realized in excess of the exercise price will be taxed to such participant as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) no deduction will be allowed to the participant’s employer for federal income tax purposes.

If stock acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of either holding period described above, generally (i) the participant will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such stock at exercise (or, if less, the amount realized on the disposition of such stock) over the exercise price paid for such stock and (ii) the participant’s employer will generally be entitled to deduct such amount for federal income tax purposes. Any further gain (or loss) realized by the participant will be taxed as short-term or long-term capital gain (or loss), as the case may be, and will not result in any deduction by the employer.

Subject to certain exceptions for disability or death, if an incentive stock option is exercised more than three months following termination of employment, the exercise of the stock option will generally be taxed as the exercise of a non-qualified stock option.

Other Stock-Based Awards. The tax effects related to other stock-based awards under the 2017 Plan are dependent upon the structure of the particular award.

Withholding. At the time a participant is required to recognize ordinary compensation income resulting from an award, such income will be subject to federal (including, except as described below, Social Security and Medicare tax) and applicable state and local income tax and applicable tax withholding requirements. If such participant’s year-to-date compensation on the date of exercise exceeds the Social Security wage base limit for such year ($127,200 in 2016), such participant will not have to pay Social Security taxes on such amounts. The Company is required to report to the appropriate taxing authorities the ordinary income received by the participant, together with the amount of taxes withheld to the Internal Revenue Service and the appropriate state and local taxing authorities.

Section 162(m). In general, Section 162(m) of the Code denies a publicly held corporation a deduction for federal income tax purposes for compensation in excess of $1 million per year per person to its chief executive officer and the three other highest-paid executive officers (other than the chief financial officer) employed at the end of that company’s fiscal year, subject to certain exceptions (including an exception for performance-based compensation). The 2017 Plan is designed so that stock options and stock appreciation rights qualify for this exception, and it permits the Committee to grant other awards designed to qualify for this exemption. The Committee is also authorized to grant awards that are not qualified under Section 162(m) of the Code.

Section 409A. Certain awards under the 2017 Plan may be subject to Section 409A of the Code, which regulates “nonqualified deferred compensation” (as defined in Section 409A of the Code). If an award under the 2017 Plan (or any other Company plan) that is subject to Section 409A of the Code is not administered in compliance with Section 409A of the Code, then all compensation under the 2017 Plan that is considered “nonqualified deferred compensation” (and awards under any other Company plan that are required pursuant to Section 409A of the Code to be aggregated with the award under the 2017 Plan) will be taxable to the participant as ordinary income in the year of the violation, or if later, the year in which the compensation subject to the award is no longer subject to a substantial risk of forfeiture. In addition, the participant will be subject to an additional tax equal to 20% of the compensation that is required to be included in income as a result of the violation, plus interest from the date that the compensation subject to the award was required to be included in taxable income.

 

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Certain Rules Applicable to “Insiders.” As a result of the rules under Section 16(b) of the Exchange Act, depending upon the particular exemption from the provisions of Section 16(b) utilized, “insiders” (as defined in Section 16(b)) may not receive the same tax treatment as set forth above with respect to the grant and/or exercise or settlement of awards. Generally, insiders will not be subject to taxation until the expiration of any period during which they are subject to the liability provisions of Section 16(b) with respect to any particular award. Insiders should check with their own tax advisors to ascertain the appropriate tax treatment for any particular award.

New Plan Benefits

Because awards to be granted in the future under the 2017 Plan are at the discretion of the Committee, it is not possible to determine the benefits or the amounts that have been or will be received by eligible participants under the 2017 Plan.

Vote Required

Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting.

Recommendation

THE BOARD OF DIRECTORS BELIEVES THAT THE ADOPTION OF THE TAKE-TWO INTERACTIVE SOFTWARE, INC. 2017 STOCK INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE 2017 STOCK INCENTIVE PLAN.

 

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ADOPTION OF THE 2017 STOCK INCENTIVE PLAN QUALIFIED RSU SUB-PLAN FOR FRANCE

(Proposal 5)

Summary of the Proposal

In August 2015, the French government first adopted a new law (Loi Macron or the “Macron Law”) providing for the grant of RSUs with preferential tax treatment if certain requirements were satisfied (“French Qualified RSUs”). In December 2016, the French government adopted further changes to the Macron Law under which French Qualified RSUs may be granted (the “Modified Macron Law”). Pursuant to the Modified Macron Law, employees receiving French Qualified RSUs will not be subject to taxation at the time of vesting when shares are issued in settlement of the RSUs, but instead will be subject to taxation at the time the shares acquired pursuant to the French Qualified RSUs subsequently are sold. Further, the employer social contributions that originally were due at the time of grant of French Qualified RSUs under the Macron Law were deferred to the date of vesting under the Modified Macron Law. Among the conditions for granting French Qualified RSUs under the Modified Macron Law is that the French Qualified RSUs are granted pursuant to an equity incentive plan approved by shareholders after December 31, 2016.

The 2017 Plan provides that the Board of Directors or a committee consisting of two or more individuals appointed by the Board of Directors to administer the 2017 Plan has the full discretionary authority to adopt rules and regulations for administration of the 2017 Plan as may be deemed necessary or appropriate to satisfy the laws of other countries, and to allow for tax-preferred treatment of awards. In order to allow us to grant awards to employees in France in a tax preferential manner under the Modified Macron Law, our Board of Directors has adopted a French Qualified RSU Sub-Plan under the 2017 Plan (the “French Qualified RSU Sub-Plan”), subject to approval by our shareholders. On this basis and in conjunction with our request for approval of the 2017 Plan, we also are asking our shareholders to approve the French Qualified RSU Sub-Plan for the purpose of being able to grant French Qualified RSUs as permitted under French law. Approval of the French Qualified RSU Sub-Plan is contingent upon shareholder approval of the 2017 Plan. The 2017 Plan is attached as Annex B to this Proxy Statement.

The following summary of the French Qualified RSU Sub-Plan is a summary of the principal features of the French Qualified RSU Sub-Plan and does not purport to be a complete description of all of the provisions of the French Qualified RSU Sub-Plan. This summary is qualified in its entirety by the full text of the French Qualified RSU Sub-Plan, which is attached as Annex C to this Proxy Statement.

Awards under the French Qualified RSU Sub-Plan.

The French Qualified RSU Sub-Plan provides for the grant of RSUs only (whether time-based and/or performance-based RSUs); it does not provide for the grant of any other form of award provided under the 2017 Plan. We are not required under the Modified Macron Law to grant French Qualified RSUs in France. We may choose, at our discretion, to grant non-qualified awards under the 2017 Plan, but outside of the French Qualified RSU Sub-Plan, to employees of our French subsidiaries and affiliates depending on the circumstances.

Eligible Individuals.

Any French employee to the Company or one of its qualifying French subsidiaries or affiliates who, on the date of grant of the French Qualified RSU, is either employed under the terms of an employment contract with a French qualifying entity or who is a corporate officer of a French qualifying entity is eligible to receive, at the discretion of the Committee, a French Qualified RSU, provided that he or she also satisfies the eligibility conditions of the 2017 Plan. French Qualified RSUs may not be issued to corporate officers of the French subsidiaries of the Company, other than to managing directors, unless the corporate officer is employed by a French entity. Also, French Qualified RSUs may not be issued to employees or corporate officers owning more than 10% of the Company’s share capital.

 

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As of the date of this proposal, approximately 5 employees in France would be eligible for French Qualified RSUs under the French Qualified RSU Sub-Plan.

Conditions of French Qualified RSUs.

French Qualified RSUs may not vest and settle prior to the expiration of the minimum mandatory vesting period under French law. However, in the event of the death of a French participant of a French Qualified RSU, such French participant’s heirs may request that the shares subject to the French Qualified RSU be transferred to them during the six-month period following the French participant’s death and if such a request is made, the RSUs must vest in full and the shares be issued to the heirs. To the extent this request is not made within the six month period following the French participant’s death, the RSU is forfeited. In the event of disability, then outstanding RSUs will vest and become non-forfeitable immediately, and together with previously vested RSUs will be settled as promptly as practicable.

Shares issued pursuant to French Qualified RSUs may be subject to a minimum mandatory holding period required under applicable law. This holding period continues to apply even if a holder of a French Qualified RSU is no longer an employee of the Company (or a subsidiary or affiliate of the Company) or a corporate officer of a French entity, except in the case of disability or death where this holding period no longer applies.

In the event of a change in capitalization or a corporate transaction, as set forth in our 2017 Plan, adjustments to the terms and conditions of the French Qualified RSUs (including the shares underlying them) may be made only in accordance with the terms of our 2017 Plan and as may otherwise be required under applicable French legal, tax and social security rules.

In the event a French Qualified RSU ceases to be qualified due to changes to the terms and conditions of such RSU, the Committee may lift, shorten or terminate certain restrictions applicable to the vesting or the sale of shares that had previously applied.

Notwithstanding any provision of our 2017 Plan to the contrary (and except in the case of death and disability), French Qualified RSUs are nontransferable.

Shares Available for Issuance under the 2017 Plan and the French Qualified RSU Sub-Plan.

As noted above, a total of 7,596,111 shares of our common stock will be available for issuance under the 2017 Plan, including French Qualified RSUs granted under the French Qualified RSU Sub-Plan. The approval of the French Qualified RSU Sub-Plan will not increase the number of shares or awards available under the 2017 Plan. The number of shares available for issuance under the 2017 Plan and the French Qualified RSU Sub-Plan is subject to adjustment to reflect stock splits, reorganizations and similar events; however, adjustment of French Qualified RSUs under such circumstances may result in a loss of qualified status.

Material French Tax Consequences.

French Qualified RSUs issued to French-resident employees subject to the French social security regime should be subject to 15.5% social security taxes on the value of such awards at the time of vesting, in contrast to currently being subject to a combined 18% social security tax rate. The vesting gain continues to be subject to progressive income tax rates (up to 45%) that employees pay upon ultimate sale of the shares received upon the settlement of French Qualified RSUs, but under the Modified Macron Law, the taxable income subject to progressive income tax can be reduced by 50% or 65% if the shares are held for a specified number of years following vesting. The tax consequences of participating in the French Qualified RSU Sub-Plan may vary with respect to individual situations and it should be noted that income tax laws, regulations and interpretations thereof change frequently. Participants should rely upon their own tax advisors for advice concerning the specific tax consequences applicable to them, including the applicability and effect of state, local and foreign tax laws.

 

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New Plan Benefits

Because awards to be granted in the future under the French Qualified RSU Sub-Plan of the 2017 Plan are at the discretion of the Committee, it is not possible to determine the benefits or the amounts that have been or will be received by eligible participants under the French Qualified RSU Sub-Plan of the 2017 Plan.

Vote Required

Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting.

Recommendation

THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE FRENCH QUALIFIED RSU SUB-PLAN OF THE 2017 PLAN IS IN THE BEST INTERESTS OF THE COMPANY, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE FRENCH QUALIFIED RSU SUB-PLAN OF THE 2017 PLAN.

 

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ADOPTION OF THE 2017 GLOBAL EMPLOYEE STOCK PURCHASE PLAN

(Proposal 6)

Summary of the Proposal

At the Annual Meeting, the Company’s shareholders will be asked to consider and act upon a proposal to approve the Take-Two Interactive Software, Inc. 2017 Global Employee Stock Purchase Plan (the “2017 Global ESPP”). The 2017 Global ESPP was approved unanimously and adopted by the Board of Directors at its meeting on July 26, 2017, subject to approval by the Company’s shareholders.

If this proposal is approved by the Company’s shareholders, subject to adjustment for certain changes in recapitalization or reorganization, the maximum aggregate number of the Company’s shares of common stock that may be issued under the 2017 Global ESPP will be 9,000,000 shares, which will be used to satisfy the purchase of shares of the Company’s common stock under either the Code Section 423 Component or the Non-Code Section 423 Component of the 2017 Global ESPP. The Company does not maintain any other employee stock purchase plans. However, it does maintain the Take-Two Interactive Software, Inc. 2009 Stock Incentive Plan, as amended, and the Company also is asking for shareholder approval for the adoption of the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan (see Proposal 4) and the Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan Qualified RSU Sub-Plan for France (see Proposal 5). As of June 30, 2017, a total of 105,185,756 of the Company’s shares of common stock were outstanding.

If this proposal is approved by the Company’s shareholders, the 2017 Global ESPP will become effective as of the first available Offering Date, as determined by the Committee, following the date of such approval. In the event that the Company’s shareholders do not approve this proposal, the 2017 Global ESPP will not become effective.

The following description of the 2017 Global ESPP is a summary and is qualified in its entirety by reference to the plan document for the 2017 Global ESPP, a copy of which is attached as Annex D to this Proxy Statement.

Purpose

The purpose of the 2017 Global ESPP is to provide an incentive for eligible Employees an opportunity to obtain a proprietary interest in the continued growth and prosperity of Take-Two through ownership of its shares of common stock.

Plan Administration

The 2017 Global ESPP will be administered by a committee (the “Committee”), which will be the Compensation Committee of the Board. The Committee will have broad administrative authority over the 2017 Global ESPP, including the ability to interpret the 2017 Global ESPP and the related agreements or documents, to change the limits on payroll deductions, to amend or terminate the 2017 Global ESPP at any time, and to establish Non-Code Section 423 Component sub-plans of the 2017 Global ESPP for purposes of effectuating the participation of eligible Employees employed by participating affiliates of the Company. The Committee will also determine all relevant terms and conditions of the Purchase Rights granted to Employees, provided that all Employees have the same rights and privileges within the meaning of Section 423(b) of the Code for purposes of the Code Section 423 Component of the 2017 Global ESPP. Any of the Committee’s administrative tasks may be assigned to an individual designated by the Company to receive enrollment agreements, withdrawal notices and other communications from eligible Employees (the “Administrator”).

Available Shares

Subject to adjustment for certain changes in recapitalization or reorganization, in which the Company is a party, the maximum aggregate number of shares of Take-Two common stock that may be issued under the 2017

 

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Global ESPP will be 9,000,000 shares of common stock. For the sake of clarity, the aggregate share limitation may be used to satisfy the purchase of shares of Take-Two common stock under either the Code Section 423 Component or the Non-Code Section 423 Component of the 2017 Global ESPP. Shares of Take-Two common stock that may be issued under the 2017 Global ESPP may consist of authorized but unissued shares and/or reacquired shares (treasury shares). If any right to purchase shares of Take-Two common stock granted under the 2017 Global ESPP expire or are terminated or canceled, the shares of common stock allocable to the unexercised portion of such right will again be available for issuance under the 2017 Global ESPP.

Offerings

The 2017 Global ESPP will be implemented by offering all eligible Employees an option to purchase shares of Take-Two common stock, which the Employee may or may not exercise during an offering period (“Purchase Right”). The duration of each offering period will be the consecutive six (6) month period commencing each November 1 and May 1, or such other period as may be established by the Committee (“Offering Period”). Each Offering Period will have one (1) purchase date, which will be the last trading day of each six (6) month Offering Period (the “Purchase Date”).

Eligibility

Employees of the Company (or a subsidiary or affiliate of the Company that is designated for offering participation in either the Code Section 423 Component or Non-Code Section 423 Component of the 2017 Global ESPP to its eligible Employees) may participate in offerings under the 2017 Global ESPP, provided such individual has been employed by the Company (or the Company’s subsidiary or affiliate, if applicable) for such continuous period preceding the first day of the Offering Period as the Committee may require, but in no event may the required period of continuous employment be equal to or greater than two (2) years.

No Employee will be eligible to participate in the 2017 Global ESPP if, immediately after the grant of Purchase Rights, the Employee would own, directly or indirectly, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the Company’s stock, a future parent corporation, or the Company’s subsidiary companies, including any stock, which such Employee may purchase under all outstanding Purchase Rights and other equity compensation awards. In addition, no Employee may purchase more than $25,000 worth of the Company’s shares of common stock (determined based on the fair market value of the shares at the time such Purchase Right is granted) under the 2017 Global ESPP and any Non-Code Section 423 Component sub-plans of the Company’s subsidiary companies for each calendar year during which such Purchase Right is outstanding.

As of the date of this proposal, approximately 3,200 Employees in the United States and other countries will be eligible to participate in the 2017 Global ESPP if approved by the Company’s shareholders.

Participation

An eligible Employee who elects to participate in the 2017 Global ESPP (“Participant”) must enroll in the 2017 Global ESPP by timely submitting a properly completed enrollment agreement to the Administrator, authorizing payroll deductions in whole percentages from one percent (1%) to ten percent (10%) of his or her compensation to be deducted from each pay period during the Offering Period.

Payment of Purchase Price; Payroll Deductions

The purchase of shares during each Offering Period will be funded by a Participant’s payroll deductions accumulated during the Offering Period. Participant payroll deductions will commence on the first pay day following the first day of the Offering Period and will continue to be deducted each pay day through the end of the Offering Period. Interest will not be paid on Participant accumulated payroll deductions, which will be

 

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deposited with the general funds of the Company and may be used by the Company for any corporate purpose. A Participant may not increase, but may decrease the rate of payroll deductions once during an Offering Period by timely submitting an amended enrollment agreement to the Administrator. A Participant who elects to decrease the rate of his or her payroll deductions to nil (0%) will remain in the 2017 Global ESPP unless he or she elects to withdraw from the 2017 Global ESPP. Unless a Participant’s participation is withdrawn, his or her Purchase Right will be exercised automatically on each Purchase Date.

Purchase Price

The price at which a share of Take-Two common stock will be purchased on each Purchase Date will be the lower of (i) 85% of the fair market value the Company’s shares of common stock on the first trading day of the Offering Period, or (ii) 85% of the fair market value of the Company’s shares of common stock on the Purchase Date (the “Purchase Price”).

Purchase Limits

Each Participant will be granted a Purchase Right to purchase on the Purchase Date for such Offering Period up to a maximum number of shares of Take-Two common stock determined by dividing such Participant’s payroll deductions accumulated prior to such Purchase Date by the applicable Purchase Price; provided, however, that in no event will a Participant be permitted to purchase more than $25,000 worth of shares of Take-Two common stock (determined based on the fair market value of the shares at the time such Purchase Right is granted) under the 2017 Global ESPP and any Non-Code Section 423 Component subplans of the Company’s subsidiary companies for each calendar year during which such Purchase Right is outstanding.

Termination of Employment

In the event a Participant’s employment is terminated, prior to a Purchase Date, for any reason, including retirement, disability or death, or in the event he or she is no longer eligible to participate in the 2017 Global ESPP, his or her rights under any offering under the 2017 Global ESPP, including such Participant’s payroll deduction authorization, will terminate immediately. Payroll deductions credited to the Participant’s account since the last Purchase Date will be, as soon as practicable, returned to the Participant, or, in the case of the Participant’s death, to the Participant’s legal representative.

Voluntary Withdrawal

Participants may withdraw from the 2017 Global ESPP at any time and receive a refund of all payroll deductions, without interest, credited to his or her 2017 Global ESPP account that have not been applied toward the purchase of shares of Take-Two common stock by submitting a withdrawal election to the Administrator no later than the tenth (10th) day of the month in which the applicable Purchase Date falls. The payroll deductions will be returned as soon as practicable after the withdrawal and may not be applied to the purchase of shares of Take-Two common stock in any other offering under the 2017 Global ESPP. Participants who withdraw from the 2017 Global ESPP will be prohibited from resuming participation for the same Offering Period, but may participate in any subsequent Offering Period.

Hardship Withdrawal

If a Participant makes a hardship withdrawal from any plan with a cash or deferred arrangement qualified under Section 401(k) of the Code which is sponsored, or participated in, by the Company, such Participant will be automatically prohibited from making or electing to make payroll deductions under the 2017 Global ESPP for a six (6) month period commencing on the date of the hardship withdrawal. The payroll deductions since the last Purchase Date will be returned as soon as practicable after the hardship withdrawal and may not be applied to the purchase of shares of Take-Two common stock in any other offering under the 2017 Global ESPP. After the expiration of such six (6) month period, the Participant may participate in any subsequent Offering Period.

 

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Restrictions on Transferability

Payroll deductions credited to a Participant’s account and any Purchase Rights granted under the 2017 Global ESPP may not be assigned, alienated, pledged, attached, sold or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the Participant. Any attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw from the 2017 Global ESPP.

Holding Period

The Committee may, in its discretion, establish a holding period for any shares of Take-Two common stock purchased in an offering to the extent permitted by applicable laws or regulations. Any holding period will end automatically upon termination of the Participant’s employment with the Company or any of the Company’s subsidiary companies or in the event of a corporate transaction (as defined in the 2017 Global ESPP). In addition, the Company may require that Participants hold the shares acquired via the 2017 Global ESPP with a third party broker/administrator for certain periods of time.

Effect of Recapitalization and Reorganization

In the event of certain changes in the Company’s capitalization, the Committee will appropriately adjust: (i) the class(es) and maximum number of securities subject to the 2017 Global ESPP, (ii) the class(es) and number of securities subject to, and the Purchase Price applicable to, outstanding offerings and Purchase Rights, and (iii) the class(es) and number of securities that are the subject of any purchase limits under each ongoing offering. The Committee also has discretion to make equitable adjustments to the 2017 Global ESPP in the event of other changes in the capital structure or business of the Company to prevent the substantial dilution or enlargement of rights granted to, or available for, Participants under the 2017 Global ESPP.

Effect of Change in Control

In the event of a change in control, as defined by the 2017 Global ESPP, any surviving or acquiring corporation may assume the Company’s rights and obligations under the 2017 Global ESPP. If the surviving or acquiring corporation does not assume the Company’s rights and obligations under outstanding Purchase Rights, the Purchase Date of the then current Offering Period will be accelerated to a date before the date of the change in control, but the number of shares of Take-Two common stock subject to outstanding Purchase Rights will not be adjusted. All Purchase Rights that are neither assumed nor exercised as of the date of the change in control will terminate and cease to be outstanding effective as of the date of the change in control.

Amendment and Termination

The Committee may amend the 2017 Global ESPP at any time; provided that any outstanding Purchase Right granted before an amendment of the 2017 Global ESPP is not materially adversely affected by any such amendment, except as necessary to comply with applicable laws, listing requirements or governmental regulations (including Section 423 of the Code), or as necessary to obtain or maintain favorable tax, listing or regulatory treatment. An amendment must be approved by the shareholders of the Company within twelve (12) months of the adoption of such amendment if the amendment authorizes the sale of more shares than are authorized for issuance under the 2017 Global ESPP or changes the definition of the corporations or companies that may be designated by the Committee as participating in the 2017 Global ESPP.

Certain U.S. Federal Income Tax Consequences

The following is a summary of the principal United States federal income tax consequences to Participants in the United States and the Company with respect to participation in the Code Section 423 Component of the

 

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2017 Global ESPP. The rules concerning the federal income tax consequences with respect to participation in the 2017 Global ESPP are quite technical. Moreover, the applicable statutory provisions are subject to change, as are their interpretations and applications which may vary in individual circumstances. Therefore, the following is designed to provide a general understanding of the federal income tax consequences. In addition, the following discussion does not set forth any gift, estate, social security or state or local tax consequences that may be applicable, and such discussion is limited to the U.S. federal income tax consequences to individuals who are citizens or residents of the U.S., other than those individuals who are taxed on a residence basis in a foreign country. Because the tax consequences to any Participant may depend on his or her particular situation, each Participant should consult his or her own tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of a Purchase Right or the sale or other disposition of shares of Take-Two common stock acquired under the 2017 Global ESPP. The 2017 Global ESPP is not subject to any of the requirements of the Employee Retirement Income Security Act of 1974, as amended. The 2017 Global ESPP is not, nor is it intended to be, qualified under Section 401(a) of the Code.

Rights granted under the 2017 Global ESPP are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under the provisions of Section 423 of the Code.

A Participant will be taxed on amounts withheld for the purchase the Company’s shares of common stock, but will not recognize taxable income as a result of the granting or exercise of a Purchase Right until a sale or other disposition of the acquired shares. The taxation upon such sale or other disposition will depend upon the holding period of the acquired shares.

If the shares are sold or otherwise disposed of more than two (2) years after the beginning of the Offering Period and more than one (1) year after the shares are transferred to the Participant, then the lesser of the following will be treated as ordinary income: (i) the excess of the fair market value of the shares at the time of such sale or other disposition over the Purchase Price, or (ii) the excess of the fair market value of the shares as of the beginning of the Offering Period over the Purchase Price (determined as of the beginning of the Offering Period). Any further gain or any loss will be taxed as a long-term capital gain or loss.

If the shares are sold or otherwise disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the shares on the Purchase Date over the Purchase Price will be treated as ordinary income at the time of such sale or other disposition. The balance of any gain will be treated as capital gain. Even if the shares are later sold or otherwise disposed of for less than their fair market value on the purchase date, the same amount of ordinary income is attributed to the Participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the shares on such purchase date. Any capital gain or loss will be short-term or long-term, depending on how long the shares have been held.

There are no federal income tax consequences to the Company by reason of the grant or exercise of rights under the 2017 Global ESPP. The Company will be entitled to a deduction to the extent amounts are taxed and reported as ordinary income to a Participant for shares sold or otherwise disposed of before the expiration of the holding periods described above (subject to the requirement of reasonableness and the satisfaction of tax reporting obligations).

New Plan Benefits

Participation in the 2017 Global ESPP is voluntary and each eligible Employee will make his or her own decision regarding whether and to what extent to participate in the 2017 Global ESPP. In addition, the Board of Directors and the Committee have not granted any Purchase Rights under the 2017 Global ESPP that are subject to shareholder approval of this proposal. Accordingly, the benefits or amounts that will be received by or allocated to the Company’s executive officers and other Employees under the 2017 Global ESPP, as well as the benefits or amounts that would have been received by or allocated to the Company’s executive officers and other Employees for fiscal 2017 if the 2017 Global ESPP had been in effect, are not determinable. The Company’s non-employee directors will not be eligible to participate in the 2017 Global ESPP.

 

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Vote Required

Approval of this proposal requires the affirmative vote of majority of the votes cast at the Annual Meeting.

Recommendation

THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE TAKE-TWO INTERACTIVE SOFTWARE, INC. 2017 GLOBAL EMPLOYEE STOCK PURCHASE PLAN IS IN THE BEST INTERESTS OF THE COMPANY, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE TAKE-TWO INTERACTIVE SOFTWARE, INC. 2017 GLOBAL EMPLOYEE STOCK PURCHASE PLAN.

 

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Equity Compensation Plan Information

The following table presents information concerning our equity compensation plans as of March 31, 2017:

 

Plan Category

   Number of Securities
to be Issued
Upon Exercise
of Outstanding
Options, Warrants
and Rights(1)
    Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights ($)(2)
     Weighted-Average
Remaining
Contractual Life
of Outstanding
Options, Warrants
and Rights (years)
     Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
First Column)
 

Equity compensation plans approved by shareholders

     4,067,234 (3)      —          —          2,194,235 (4) 

Equity compensation plans not approved by shareholders

     —         —          —          —    
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

     4,067,234       —          —          2,194,235  
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) As of March 31, 2017, the Company also had 319,950 shares of outstanding restricted stock, which are not reflected in the table because they are treated as issued and outstanding and will not have additional dilutive impact on the Company when the awards vest.
(2) No weighted-average exercise price is reported for the awards reported because shares of common stock are issued under all of the outstanding awards without any cash payment.
(3) Consists of 4,067,234 RSUs granted under the 2009 Plan that may be settled in cash or, in the discretion of the Company, in shares of common stock issued under the 2009 Plan.
(4) The amount shown does not include shares of our common stock to be available for issuance under the 2017 Plan or the 2017 Global ESPP proposed for approval by our shareholders at the Annual Meeting under Proposals 4 and 6 of this Proxy Statement. If approved, the aggregate number of shares of our common stock available for issuance under the 2017 Plan will be 7,596,111, and under the 2017 Global ESPP will be 9,000,000.

The following table presents information concerning our equity compensation plans as of June 30, 2017:

 

Plan Category

   Number of Securities
to be Issued
Upon Exercise
of Outstanding
Options, Warrants
and Rights(1)
     Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights ($)(2)
     Weighted-Average
Remaining
Contractual Life
of Outstanding
Options, Warrants
and Rights (years)
     Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
First Column)
 

Equity compensation plans approved by shareholders

     2,834,905        —          —          2,396,111 (3) 

Equity compensation plans not approved by shareholders

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,834,905        —          —          2,396,111  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) As of June 30, 2017, the Company also had 244,982 shares of outstanding restricted stock, which are not reflected in the table because they are treated as issued and outstanding and will not have additional dilutive impact on the Company when the awards vest.
(2) No weighted-average exercise price is reported for the awards reported because shares of common stock are issued under all of the outstanding awards without any cash payment.
(3) The amount shown does not include shares of our common stock to be available for issuance under the 2017 Plan or the 2017 Global ESPP proposed for approval by our shareholders at the Annual Meeting under Proposals 4 and 6 of this Proxy Statement. If approved, the aggregate number of shares of our common stock available for issuance under the 2017 Plan will be 7,596,111, and under the 2017 Global ESPP will be 9,000,000.

 

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RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(Proposal 7)

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP (“Ernst & Young”) as the Company’s independent registered public accounting firm to audit its consolidated financial statements for its fiscal year ending March 31, 2018. Although action by the shareholders on this matter is not required, the Audit Committee believes it is appropriate to seek shareholder ratification of the appointment of the independent registered public accounting firm to provide a forum for shareholders to express their views with regard to the Audit Committee’s appointment. If the shareholders do not ratify the appointment of Ernst & Young, the selection of independent registered public accounting firms may be reconsidered by the Audit Committee; provided, however, that the Audit Committee retains the right to continue to engage Ernst & Young. In addition, notwithstanding the ratification of Ernst & Young as the Company’s independent registered public accounting firm for the year ending March 31, 2018, the Audit Committee retains the right to replace Ernst & Young at any time without shareholder approval.

THE BOARD OF DIRECTORS BELIEVES THAT RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP IS IN THE BEST INTERESTS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” SUCH RATIFICATION.

 

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INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

Ernst & Young has been the Company’s independent registered public accounting firm and has audited the Company’s financial statements since April 2006. The Company has been advised that representatives of Ernst & Young will be present at the Annual Meeting with the opportunity to make a statement if the representatives desire to do so. It is expected that the representatives will be available to respond to appropriate questions.

Pre-Approval Policies and Procedures

Pursuant to its charter, the Audit Committee is responsible for reviewing and pre-approving all audit and non-audit services. The Audit Committee may delegate pre-approval authority to the chair or another member of the Audit Committee, in which case such approval must be presented to the full Audit Committee at its next scheduled meeting. The Audit Committee pre-approved all audit, audit-related and tax services provided by Ernst & Young for the recently completed fiscal year.

Independent Auditor Fee Information

The aggregate fees billed by Ernst & Young for fiscal 2017 and fiscal 2016 are set forth below. The Audit Committee believes that the services performed by Ernst & Young were compatible with maintaining Ernst & Young’s independence.

 

     3/31/2017      3/31/2016  

Audit(1)

   $ 3,116,740      $ 2,911,900  

Audit-Related

     59,700        75,535  

Tax(2)

     1,420,000        919,000  
  

 

 

    

 

 

 

Total

   $ 4,596,440      $ 3,906,435  
  

 

 

    

 

 

 

 

(1) Audit fees were for audit services, including (a) the annual audit (including required quarterly reviews), subsidiary audits and other procedures required to be performed by the independent auditor to be able to form an opinion on the Company’s consolidated financial statements, (b) the audit of the effectiveness of the Company’s internal control over financial reporting, (c) consultation with management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final proposed rules, standards or interpretations by the SEC, the Financial Accounting Standards Board or other regulatory or standard-setting bodies, (d) international statutory audits, and (e) services that only the independent auditor reasonably can provide, such as services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings and assistance in responding to SEC comment letters.
(2) Tax fees were for services related to (a) tax compliance and advice and (b) tax planning and tax advice.

 

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate this Proxy Statement or future filings with the SEC, in whole or in part, the following report shall not be deemed to be “soliciting material” or “filed” with the SEC and shall not be deemed to be incorporated by reference into any such filing.

Review of the Company’s Audited Financial Statements for the Fiscal Year Ended March 31, 2017

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has the primary responsibility for the financial statements, for maintaining effective internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended March 31, 2017 with Company management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

The Audit Committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by Auditing Standards No. 1301, Communication With Audit Committees (as amended), other standards of the Public Company Accounting Oversight Board (United States), rules of the SEC, and other applicable regulations. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence.

The Audit Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of the Company’s internal control over financial reporting.

The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal control, including internal control over financial reporting, and the overall quality of the Company’s financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the audited consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in the Annual Report on Form 10-K for the year ended March 31, 2017 filed by the Company with the SEC. The Audit Committee also has appointed Ernst & Young as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2018.

Submitted by the Audit Committee

of the Board of Directors:

Robert Bowman (Chair)

Michael Dornemann

Susan Tolson

Dated: July 27, 2017

 

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

The statements contained in this Proxy Statement which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company’s future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties. All forward-looking statements are qualified by these cautionary statements and speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

What matters will be considered at the Annual Meeting?

 

   

the election as directors of the seven nominees named in the attached Proxy Statement;

 

   

the approval, on a non-binding advisory basis, of the compensation of the Company’s “named executive officers” as disclosed in this Proxy Statement;

 

   

the approval of an advisory vote on the frequency of holding future advisory votes to approve the compensation of the Company’s “named executive officers”;

 

   

the approval of the 2017 Plan;

 

   

the approval of the French Qualified RSU Sub-Plan;

 

   

the approval of the 2017 Global ESPP;

 

   

the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018; and

 

   

such other business that may properly come before the Annual Meeting or any adjournment thereof.

How does the Board of Directors recommend that shareholders vote on these matters?

The Board of Directors believes that the election of the nominated directors, the approval on an advisory basis of the compensation of the named executive officers, the approval of an annual advisory vote on the compensation of the named executive officers, the approval of each of the 2017 Plan, the French Qualified RSU Sub-Plan and the 2017 Global ESPP, and the ratification of the appointment of Ernst & Young are in the best interests of the Company and its shareholders and, accordingly, recommends a vote “FOR” or “1 Year”, as applicable, for each of these proposals.

Who is entitled to vote?

Shareholders of record as of the close of business on July 21, 2017 (the “Record Date”) are entitled to attend and vote at the Annual Meeting. Each shareholder is entitled to one vote for each share of common stock held on each matter submitted to a vote at the Annual Meeting.

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

The rules of the SEC permit us to make our proxy materials available to beneficial owners of our stock electronically over the Internet without mailing printed copies of the proxy materials. Accordingly, we are

 

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sending a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) to our beneficial owners. All beneficial owners will have the ability to access the proxy materials, including this Proxy Statement and our 2017 Annual Report, on the website referred to in the Notice of Internet Availability or to request a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or how to request a printed copy can be found in the Notice of Internet Availability. In addition, beneficial owners may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

What does it mean if I receive more than one Notice of Internet Availability or proxy card?

It may mean that you hold shares registered in more than one account. Follow the voting instructions provided on each Notice of Internet Availability that you received to ensure that all of your shares are voted. If you received paper proxy cards, sign and return all proxy cards to ensure that all of your shares are voted. You may call American Stock Transfer & Trust Company at 1-800-937-5449 if you have any questions regarding the share information or your address appearing on the paper proxy card.

How do I vote?

You can vote by proxy over the Internet by following the instructions provided in the Notice of Internet Availability.

If you received a full set of proxy materials and your shares are registered directly with American Stock Transfer & Trust Company, you may vote via the Internet at www.proxyvote.com. Although we encourage you to vote via the Internet, you may also sign and date each paper proxy card you receive and return it in the prepaid envelope; the paper proxy card may also contain instructions for voting by telephone. The enclosed proxy will be voted in accordance with the instructions thereon. Unless otherwise stated, all shares represented by such proxy will be voted as instructed. Proxies may be revoked in the manner described above.

If you hold your shares through a stock broker, nominee, fiduciary or other custodian you may also be able to vote through a program provided through Broadridge Financial Solutions (“Broadridge”) that offers Internet voting options. If your shares are held in an account at a brokerage firm or bank participating in the Broadridge program, you are offered the opportunity to elect to vote via the Internet. Votes submitted via the Internet through the Broadridge program must be received by 11:59 p.m. (Eastern Time) on September 14, 2017.

What happens if I do not give specific voting instructions?

For Shares Directly Registered in the Name of the Shareholder: If you return your signed proxy but do not indicate your voting preferences, the Company will vote on your behalf “FOR” the election of the nominated directors, “FOR” the approval on an advisory basis of the compensation of the named executive officers, “1 Year” for the advisory vote on the frequency of holding future advisory votes to approve the compensation of the named executive officers, “FOR” the approval of the 2017 Plan, “FOR” the approval of the French Qualified RSU Sub-Plan, “FOR” the approval of the 2017 Global ESPP and “FOR” the ratification of the appointment of Ernst & Young. If any other matter properly comes before the shareholders for a vote at the Annual Meeting, the proxy holders will vote your shares in accordance with their best judgment.

For Shares Registered in the Name of a Brokerage Firm or Bank: If your shares are held in street name, your broker or nominee will ask you how you want your shares to be voted. If you provide voting instructions, your shares must be voted as you direct. If you do not furnish voting instructions, one of two things can happen, depending upon whether a proposal is “routine.” Under the rules that govern brokers that have record ownership of shares beneficially owned by their clients, brokers have discretion to cast votes on routine matters, such as the ratification of the appointment of independent registered public accounting firms, without voting instructions from their clients. Brokers are not permitted, however, to cast votes on “non-routine” matters, such as the election of directors, the non-binding advisory vote to approve the compensation of the Company’s “named executive officers” as disclosed in this Proxy Statement, the advisory vote on the frequency of future advisory

 

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votes to approve the compensation of the named executive officers, the approval of the 2017 Plan, the approval of the French Qualified RSU Sub-Plan and the approval of the 2017 Global ESPP without such voting instructions. A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that proposal and has not received voting instructions from the beneficial owner.

What is an abstention?

An abstention is a properly signed proxy card that is marked “abstain” or properly completed instructions via the Internet to the same effect.

How do I sign the paper proxy card?

Sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as an attorney, executor, administrator, guardian, trustee or the officer or agent of a company), you should indicate your name and title or capacity. If the stock is held in custody for a minor (for example, under the Uniform Transfers to Minors Act), the custodian should sign the proxy card, not the minor. If the stock is held in joint ownership, both owners must sign.

May I vote my shares in person at the Annual Meeting?

For Shares Directly Registered in the Name of the Shareholder: Yes, however, we encourage you to vote by proxy card or the Internet even if you plan to attend the meeting. If you wish to give a proxy to someone other than the individuals named as proxies on the enclosed proxy card, you may cross out the names appearing on the enclosed proxy card, insert the name of some other person, sign the card and give t