DEF 14A 1 d940734ddef14a.htm DEF 14A DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement

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

  Definitive Proxy Statement

  Definitive Additional Materials

  Soliciting Material 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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Table of Contents

 

   LETTER TO OUR SHAREHOLDERS  

 

 

July 24, 2020

 

 

LOGO     

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 16, 2020, 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 use 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 July 30, 2020, 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 you read 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. | 110 West 44th Street | New York, New York 10036, USA

tel 646.536.2842  |  fax 646.536.2926  |  www.take2games.com

 

 

LOGO

 

 


Table of Contents

 

   Notice of Annual Meeting of Shareholders  

 

 

LOGO

 

Date and Time:   September 16, 2020
Time:   9:00 a.m. local time
Location:   W Hotel

201 Park Avenue South

New York, New York 10003

Items of Business:   1.   Election of eight 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 of the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan to increase the available shares reserved thereunder;
  4.   Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2021; and
  5.   Other business that may properly come before the Annual Meeting or any adjournment thereof.
Record Date:   Only shareholders of record at the close of business on July 20, 2020 are entitled to notice of and to vote at 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 the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive 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” for each of these proposals.

We are actively monitoring the public health and travel safety concerns relating to the Coronavirus (COVID-19) and the advisories or mandates that federal, state, and local governments, and related agencies, may issue. In the event it is not possible or advisable to hold our annual meeting as currently planned, we will announce any additional or alternative arrangements for the meeting, which may include a change in venue or holding the meeting solely by means of remote communication. Please monitor our website at www.take2games.com and our filings with the SEC for updated information. If you are planning to attend our meeting, please check our website the week of the meeting. As always, we encourage you to vote your shares prior to the annual meeting.

 

By Order of the Board of Directors,

 

 

LOGO

Matthew K. Breitman

General Counsel Americas and

Corporate Secretary

July 24, 2020

 

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.

 

 


Table of Contents

 

   Proxy Statement  

 

 

LOGO

110 West 44th Street

New York, New York 10036

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 16, 2020

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 16, 2020 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 July 30, 2020.

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 110 West 44th Street, New York, New York 10036, and our 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 16, 2020

Our Proxy Statement and 2020 Annual Report to Shareholders are available at

http://www.proxyvote.com

 

 

 

 

LOGO    Take-Two Interactive Software, Inc. | 2020 Proxy Statement       1


Table of Contents

 

   Table of Contents  

 

 

Proxy Summary      3  
Proposal 1: Election of Directors      8  

Corporate Governance and Board Practices

     13  

Board Committees

     18  

Other Executive Officers

     19  
Proposal 2: Non-binding Advisory Vote 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

     37  

Operation of the Compensation Committee

     42  

Compensation Governance Practices

     43  
Report of the Compensation Committee of the Board of Directors      45  
Risk Assessment of Overall Compensation Program      45  
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      67  
Proposal 3: Approval of the Amended and Restated 2017 Stock Incentive Plan      68  
Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm      82  
Independent Registered Public Accountants      83  
Report of the Audit Committee of the Board of Directors      84  
Information about the Annual Meeting and Voting      85  
Availability of Certain Documents      89  
No Incorporation By Reference      90  
Shareholder Proposals for Next Annual Meeting      91  
Other Matters      92  
Annex A—Reconciliation of GAAP Net Income to Adjusted EBITDA      A-1  
Annex B—Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan      B-1  
 

 

 

 

2       Take-Two Interactive Software, Inc. | 2020 Proxy Statement   LOGO


Table of Contents

 

   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.

2020 Annual Meeting of Shareholders

 

 

 

Date and Time

September 16, 2020,

at 9:00 a.m.

  

 

Location

W Hotel

201 Park Avenue South

New York, New York 10003

 

  

 

Record Date

July 20, 2020

Voting Matters and Board Recommendations

 

 

Item

 

  

Proposal

 

  

 

Board’s

Recommendation

 

  

Page  

Number  

 

 

1

  

 

Election of eight director nominees

  

 

FOR

(each nominee)

  

 

8

 

2

  

 

Advisory vote to approve executive compensation

  

 

FOR

  

 

20

 

3

  

 

Approval of the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan to increase the available shares reserved thereunder

  

 

FOR

  

 

68

 

4

  

 

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2021 (“fiscal 2021”)

  

 

FOR

  

 

82

Company Performance Highlights

 

The Company delivered strong financial results in our fiscal year ended March 31, 2020 (“fiscal 2020”) and continued to execute successfully on our strategy to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres.

 

 

LOGO



 

 

 

LOGO    Take-Two Interactive Software, Inc. | 2020 Proxy Statement       3


Table of Contents
 

 

  PROXY SUMMARY  

 

 

 

Board of Directors Highlights

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

 

 

 

Active and empowered lead independent director role

 

 

Deliberate approach to Board refreshment, including the addition of new independent directors in 2017, 2018 and 2019

 

 

Annual election of all directors

 

 

Annual self-evaluations by the Board of Directors and its committees, as well as biennial individual interviews of each director by an outside third party

 

Majority vote standard for uncontested director elections

 

 

7 out of 8 current director nominees are independent (all except our Chairman and CEO)

 

 

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

 

 

Annual performance review of Chairman and CEO and other members of the executive management team by independent directors

 

 

 

  

Diversity

 

LOGO     

  

 

Age

 

LOGO

 

Age

~61 (On Average)

 

Independence

 

  LOGO  

 

Tenure

 

LOGO

 

Tenure

~8 years (On Average)

 



 

4       Take-Two Interactive Software, Inc. | 2020 Proxy Statement   LOGO


Table of Contents
 

 

  PROXY SUMMARY  

 

 

 

                        Committee Memberships
  Name   Age   Director
Since
  Principal Occupation   Independent   Other
Public
Boards
  Audit   Compensation   Corporate
Governance
  Executive  

Michael Dornemann

Lead Independent

Director

  74   March
2007
 

 

Retired Chairman

and CEO,

Bertelsmann

Entertainment

            Chair

Roland Hernandez

  62   September
2019
 

 

Founding Principal

and Chief Executive
Officer of Hernandez
Media Ventures

    3        

J Moses

  61   March
2007
 

 

Principal,
J Moses Projects

          Chair  

Michael Sheresky

  52   March
2007
 

 

Partner, United

Talent Agency

        Chair    

LaVerne Srinivasan

  58   March
2017
 

 

Vice President,

Carnegie Corporation
of New York

           

Susan Tolson

  58   March
2014
 

 

Retired Portfolio

Manager, Capital

Research and

Management

Company

    3   Chair      

Paul Viera

  61   May
2018
 

 

Chief Executive

Officer, Earnest

Partners LLC

           

Strauss Zelnick

  63   March
2007
 

 

Chairman and CEO,
Take-Two Interactive

Software, Inc.

    1        

Shareholder Engagement

 

The Board of Directors places a premium on, oversees and, together with management, regularly participates in an extensive, year-round shareholder engagement program to encourage ongoing, meaningful dialogue about the topics they find most important. We discuss a diverse range of topics with our shareholders, including board, governance, and executive compensation practices, on which we actively seek shareholder feedback. In the months leading up to the filing of this Proxy Statement, we sought discussions with holders of over 69% of our outstanding shares (percentage based on the Company’s investors’ most recent filings at the time of outreach) and had discussions with a number of our top holders.

Investor perspectives shared through these discussions help to inform deliberations in the boardroom and are considered by the Board and its committees in decision making. In response to feedback from our shareholders, we formed a management committee with respect to environmental, social and governance matters, which is overseen by the Corporate Governance Committee. The management committee has continued to evaluate and administer the Company’s environmental, social and governance efforts. We have also continued to enhance our disclosure related to certain human capital and sustainability matters. See “Election of Directors (Proposal 1)—Corporate Governance and Board Matters—Environmental, Social and Governance Matters” for additional detail.



 

LOGO    Take-Two Interactive Software, Inc. | 2020 Proxy Statement       5


Table of Contents
 

 

  PROXY SUMMARY  

 

 

 

Corporate Governance Highlights

 

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

 

 

Ongoing review and refreshment of Board composition

 

 

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 in fiscal 2020 was performance-based.

 

 

LOGO

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

 

 

 

Clawback policy with respect to incentive compensation

 

 

Caps on annual bonuses to NEOs

 

 

Double-trigger vesting on a change in control

 

 

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

 

 



 

6       Take-Two Interactive Software, Inc. | 2020 Proxy Statement   LOGO


Table of Contents
 

 

  PROXY SUMMARY  

 

 

Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan

 

We are asking that our shareholders approve the Amended and Restated 2017 Stock Incentive Plan to increase the number of shares available for issuance under the plan by 2,000,000 shares, which would be added to the 4,744,253 shares available for issuance under the 2017 Plan as of June 30, 2020. The Board of Directors believes that the increase in the number of shares is necessary to enable the Company to continue to secure the creative talent that drives company performance and to 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 Rockstar Games, 2K, Private Division, and Social Point, drive our business, are critical to our continued success, and help us build shareholder value.

 

 We believe our use of equity throughout Take-Two, and beyond the executive level is a strategic advantage and vital to our ownership culture.

 

 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 2020, 62% of equity awards granted were used to retain employees at our labels.

 

   Fiscal 2020 Share Grant Distribution
  

 

LOGO

 

 

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



 

 

 

LOGO    Take-Two Interactive Software, Inc. | 2020 Proxy Statement       7


Table of Contents

 

  

Election of Directors

(Proposal 1)

 

 

 

All members of the Board of Directors stand for election on an annual basis, and at the Annual Meeting eight director nominees will stand for election to hold office for a term expiring at the 2021 Annual Meeting of Shareholders. The Board of Directors, upon the recommendation of the Corporate Governance Committee, has nominated the individuals named below. Each director who is elected will 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.

Our eight nominees include seven independent, outside directors who as a group have extensive and diverse management experience, subject matter expertise, and knowledge that is critical to the Company. The average director tenure is approximately 8 years. The average age of the board members is 61. Half of the board members are women and/or minorities.

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 a shareholder is voting against 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, a director will be elected if the number of votes that are cast “FOR” his or her election by holders of the stock present in person or represented by proxy entitled to vote on the election of directors exceed the number of votes cast “AGAINST” his or her election by such holders. The Company’s bylaws provide that any nominee for director who fails to meet this standard shall promptly tender such 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.”

 

 

 

8       Take-Two Interactive Software, Inc. | 2020 Proxy Statement   LOGO


Table of Contents
 

 

  ELECTION OF DIRECTORS (PROPOSAL  ONE)  

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE

“FOR” THE ELECTION OF THE NOMINEES NAMED BELOW:

 

Michael Dornemann

 

 

LOGO

 

  

Lead Independent Director

 

Chair: Executive Committee

 

Member:

 Audit, Compensation and Corporate Governance

Committees

 

Age: 74

 

Director since: March 2007

 

Beneficial owner of 12,062 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.

Additional Public Directorships (current):

 

    None

Other board experience: 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 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 a unique level of insight into both our business and our governance.

Roland Hernandez

 

 

LOGO

 

  

Independent Director

 

Member:

 Compensation Committee

 

Age: 62

 

Director since: September 2019

 

Beneficial owner of 1,845 shares

 

Mr. Hernandez is the Founding Principal and Chief Executive Officer of Hernandez Media Ventures, a privately held company engaged in the acquisition and management of media assets. He has served in this capacity since January 2001. Before founding Hernandez Media Ventures, Mr. Hernandez served as Chairman of Telemundo Group, Inc., a Spanish-language television and entertainment company, from 1998 to 2000 and as President and Chief Executive Officer from 1995 to 2000.

Additional Public Directorships (current):

 

    US Bancorp
    Fox Corporation
    MGM Resorts International

Other board experience: Until April 2019, Mr. Hernandez served as the Chairman of the Board of Belmond, Ltd. Until December 2019, Mr. Hernandez served as a member of the board of directors of Vail Resorts, Inc. Mr. Hernandez serves on the advisory board of Harvard Law School. He previously served on the board of directors of Sony Corporation and Walmart Inc.

 

Key experience and qualifications: As the former President, Chief Executive Officer and Chairman of a television and entertainment company, and through his experience on the Boards of Fox Corporation, MGM Resorts International, Sony Corporation, Walmart Inc. and Vail Resorts, Inc., Mr. Hernandez has gained significant experience in international business and financial matters and a broad understanding of the retail and media sectors which is particularly relevant to the Company. In addition, with his extensive experience on the boards of large public corporations, Mr. Hernandez brings broad corporate governance expertise, along with significant knowledge of board operations, to our Board of Directors.

 

 

 

 

LOGO    Take-Two Interactive Software, Inc. | 2020 Proxy Statement       9


Table of Contents
 

 

  ELECTION OF DIRECTORS (PROPOSAL  ONE)  

 

 

 

J Moses

 

 

LOGO

 

  

Independent Director

 

Chair: Corporate Governance Committee

 

Member:

 Audit and Compensation Committees

 

Age: 61

 

Director since: March 2007

 

Beneficial owner of 18,924 shares

Mr. Moses has over 40 years of experience in video games, technology, sports, entertainment, eSports and sports betting; as a CEO, founder, investor, advisor, producer and director for public and private businesses around the world. Mr. Moses currently serves on the boards of Bet.Works, a sports betting backend technology that powers operators in multiple states; ReadyUp, an eSports infrastructure business that connects gamers around the world; and Prize Payments Pro, a platform that efficiently processes prize payments for eSports competitions. Mr. Moses has served as an advisor to SimulMedia, a platform which provides advanced TV advertising, since its inception in 2008.

Prior executive roles: Mr. Moses was the founder, and from 1998 to 2007, the Chief Executive Officer, of UGO Networks, Inc., an online publisher and affiliate network delivering information and entertainment to over 20 million gamers around the world. He managed the sale of the company to the Hearst Corporation in 2007. Mr. Moses previously served as the President of MTV Russia where he successfully oversaw the establishment of the Moscow based Network in 1998. Mr. Moses served as the President of BMG Interactive from 1993 to 1996, the former video game and new technology divisions of BMG Entertainment, where he “green-lighted” a portfolio of 11 video games including the original Grand Theft Auto. Mr. Moses has served as the Special Assistant to Roone Arledge, the President of ABC Sports and News; as an Executive Producer on Stolen Babies, a made for TV movie for ABC; and as Creator for New York News, a TV series for CBS. Mr. Moses is currently developing a scripted show for the CW Network on the world of eSports.

Additional Public Directorships (current):

 

    None

 

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.

Michael Sheresky

 

 

LOGO

 

  

Independent Director

 

Chair: Compensation Committee

 

Member:

 Corporate Governance and Executive Committees

 

Age: 52

 

Director since: March 2007

 

Beneficial owner of 60,723 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.

Additional Public Directorships (current):

 

    None

 

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 keen insight into negotiations with, and the development and compensation of, creative talent and of management.

 

 

10       Take-Two Interactive Software, Inc. | 2020 Proxy Statement   LOGO


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  ELECTION OF DIRECTORS (PROPOSAL  ONE)  

 

 

LaVerne Srinivasan

 

 

LOGO

 

  

Independent Director

 

Member:

 Corporate Governance Committee

 

Age: 58

 

Director since: March 2017

 

Beneficial owner of 6,423 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.

Additional Public Directorships (current):

 

    None

Other board experience: Ms. Srinivasan serves on the national advisory board of College Promise Campaign, the advisory boards of Education Equity Lab, Jefferson Education Exchange, Reach Higher and Global Science of Learning for Education Network, 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.

Susan Tolson

 

 

LOGO

 

  

Independent Director

 

Chair: Audit Committee

 

Member:

 Audit Committee

 

Age: 58

 

Director since: March 2014

 

Beneficial owner of 23,482 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.

Additional Public Directorships (current):

 

    Groupe Lagardère
    Worldline E-Payments Services
    OUTFRONT Media Inc.

Other board experience: Ms. Tolson was a member of the board and audit committee of the American Cinematheque until 2018; a trustee and member of the business affairs committee of The American University of Paris until 2014; and a member of the board and audit committee of American Media until 2014.

 

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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Paul Viera

 

 

LOGO

 

  

Independent Director

 

Member:

 Audit Committee

 

Age: 61

 

Director since: May 2018

 

Beneficial owner of 80,452 shares

Mr. Viera is the Founder and Chief Executive Officer of Earnest Partners, a global investment firm responsible for overseeing over $20 billion for municipalities, states, corporations, endowments, and universities. Prior to founding Earnest Partners in 1998, Mr. Viera was a Vice President at Bankers Trust in both New York and London and later joined Invesco, where he became a global partner and senior member of its investment team.

Additional Public Directorships (current):

 

    None

Other board experience: Mr. Viera serves as a Trustee of the Woodruff Arts Center in Atlanta, Georgia and as a member of its investment committee. He is also a member of the board of managers of Direct Scripts LLC, the Board of Dean’s Advisors for Harvard Business School, the Council on Foreign Relations, the Carter Center Board of Councilors, the National Center for Human & Civil Rights, the University of Michigan School of Information External Advisory Board, the Cristo Rey Atlanta Jesuit High School Board and the Emory University Board of Visitors.

 

Key experience and qualifications: Mr. Viera brings to the Board of Directors proven leadership skills, vast business experience and financial acumen.

Strauss Zelnick

 

 

LOGO

 

  

Chairman and CEO

 

Member:

 Executive Committee

 

Age: 63

 

Director since: March 2007

 

Beneficial owner of 795,987 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 founder of and a partner in Zelnick Media Capital, a leading media focused private equity firm. Mr. Zelnick serves as Executive Chairman of the Board of Directors and Chief Executive Officer of the Company pursuant to the terms of the 2017 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 Zelnick Media Capital, 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.

Additional Public Directorships (current):

 

    Starwood Property Trust, Inc.

Other board experience: Mr. Zelnick serves as a member of the boards of directors of Education Networks of America, a privately-held company; CommentSold, Inc., a privately-held company; and of the Entertainment Software Association, for which he served as Chairman from July 2014 to July 2017. From September 2018 to December 2019, Mr. Zelnick served on the board of ViacomCBS Inc. (formerly known as CBS Corporation), a public company, and as a member of its compensation committee and nominating and governance committee. He also served as the non-executive interim chairman of the CBS board from October 2018 until December 2019. 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.

 

 

Director Backgrounds & Expertise

 

               

Management of Creative Talent  

                                                           

Financial & Investment Experience  

                                                           

Governance  

                                                           

Marketing Insight  

                                                           

Strategic Advisory  

                                                           

Education Experience  

                                                           

Global Business Operations  

                                                           

Leadership  

                                                           

Consulting Experience  

                                                           

Entertainment & Media Expertise  

                                                           

Governmental Experience  

                                                           

Technology  

                                                           

Corporate Sustainability  

                                                           

Corporate Governance and Board Practices

 

Shareholder Engagement. The Board of Directors places a premium on, oversees and, together with management, regularly participates in an extensive, year-round shareholder engagement practice. For more information regarding the Company’s shareholder engagement, see “Compensation Discussion and Analysis-Shareholder Outreach.”

Independent Directors. The Board of Directors has determined that Messrs. Dornemann, Hernandez, Moses, Sheresky and Viera and Mses. Srinivasan and Tolson are “independent” directors as defined under the rules of The NASDAQ Stock Market. During fiscal 2020, 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 and Company management. 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 more effectively unifies 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 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.

 

 

 

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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 Chief Legal Officer 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 regularly engages separately with one or more of the Chief Executive Officer, the President, the Chief Financial Officer and the Chief Legal Officer 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 that include both the completion of a questionnaire as well as biennial individual interviews of each director by an outside third party. These evaluations are utilized by the Board and each committee to improve communication, strategy and effectiveness, and to identify possible improvements that can be made to the performance and composition of the Board and each of its committees. The Corporate Governance Committee assists the Board of Directors in its review and reports to the full Board regarding its findings and recommendations, which are considered and implemented as appropriate. Furthermore, the Compensation Committee performs an annual performance review of the Chairman, CEO and other named executive officers and reports its findings to the full Board.

 

 

 

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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 business continuity planning, cyber, 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 and also oversees a management committee that was formed to address environmental, social and governance matters. 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. In addition to its committees addressing COVID-19 risks specific to their delegated duties, the Board of Directors has reviewed, overseen and continues to monitor the identification of COVID-19 risks and mitigation strategies related to the Company’s return-to-work procedures, business strategy, business continuity, and the impact on the Company’s financial planning.

 

 

LOGO

Meetings of Directors. The Board of Directors held ten (10) meetings during fiscal 2020. 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.

Board Strategic Off-site. Periodically (approximately every 18 months), the Board of Directors convenes at an off-site strategic planning session, which includes presentations and discussions with senior management, to review the Company’s strategic, competitive and financial performance goals as well as to discuss the Company’s long-term strategic plan. The most recent off-site strategic planning session took place in May 2019.

Attendance at Shareholder Meetings. The Board of Directors has adopted a policy whereby director nominees are 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 2019.

Policy on Majority Voting for Directors. In response to feedback from our shareholders, on June 20, 2019, based on the Corporate Governance Committee’s recommendation, the Board of Directors approved an amendment to the Company’s bylaws to change the standard for uncontested director elections from a plurality voting standard to a majority vote standard. In an uncontested election, a director shall be elected if the number of votes that are cast “for” his or her election by holders of the stock present in person or represented by proxy entitled to vote on the election of directors exceeds the number of votes cast “against” his or her election by such holders. If a nominee who currently serves as a director is not re-elected, Delaware law provides that the director will continue to serve on our Board as a “holdover director” (i.e., until his or her successor has been duly elected and qualified, or until the earliest of his or her death, resignation or removal). In an uncontested election,

 

 

 

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any nominee for director who fails to receive a greater number of votes cast “for” such individual’s election than votes cast “against” 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 will disclose promptly 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 to accept the resignation offer.

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 “Investors,” then “Corporate Governance,” then “Highlights.”

Supplier Code of Conduct. The Company has also adopted a Supplier Code of Conduct that applies to vendors, suppliers, consultants and other third parties we engage, which makes clear that we expect all of our business partners to operate fairly and ethically, comply with domestic and international laws, and promote a work environment that values honesty, openness, integrity, and respect for fundamental human rights, wherever in the world we do business.

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 “Investors,” then “Corporate Governance,” then “Highlights.”

Environmental, Social and Governance Matters. The Company believes that focusing on corporate governance and corporate responsibility creates value for the Company, our employees, our shareholders, our consumers and other stakeholders while also helping mitigate risks, reduce costs, protect brand value, and identify market opportunities. Our management committee overseeing environmental, social and governance matters is comprised of delegates representing a cross-section of our organization, including members of our global human resources, legal, IT, investor relations, facilities and financial teams, and is overseen by the Corporate Governance Committee. The goal of this committee is to ensure that corporate responsibility and sustainability considerations are incorporated into our corporate strategy, disclosure, and long-term goals to maintain and advance sustainable shareholder value. The committee recently retained a consultant to conduct a materiality assessment to assist in identifying the most significant ESG-related risks and opportunities for the Company. Areas on which this committee continues to focus include board diversity and refreshment, human capital management, cybersecurity, sustainability and community.

Board Diversity and Refreshment. The Board of Directors routinely reviews the composition of the Board and believes that it benefits from having a diverse group of directors, including based on experience, gender, ethnicity and other factors. The Board has taken a deliberate approach to refreshment, with a new director joining each of the prior three years and four of our eight director nominees having served for six years or less. All four of the recent additions to the Board are female and/or a minority.

 

 

 

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Human Capital Management. Creativity and innovation remain among the core tenets of our organization, and are the lifeblood of our ongoing success. The creative teams at our labels are renowned for their ability consistently to deliver games that set new benchmarks for excellence. We support our creative and corporate teams by focusing on talent retention and acquisition, including through our commitment to:

 

    job development and skills training initiatives, including, but not limited to: E-Learning, live online & classroom training, online performance management and goal setting, one-on-one internal coaching for leadership and skills development, customized individual development planning, and group training initiatives;

 

    offering extensive employee benefits and a global wellbeing program called Level Up, which incentivizes employees to make good choices regarding their physical, emotional, and financial wellbeing, by providing challenges, inspiring content and wearable devices, and rewarding our employees for taking small steps to maintain happy, healthy lives;

 

    promoting and maintaining a diverse and inclusive workforce that both enables us to deliver entertainment experiences that captivate and engage our diverse community of players, and makes our organization a place of which our employees are proud to be a part;

 

    equal pay for equal work. We have made efforts across our global organization to promote equal pay practices. We are committed to continuing to assess pay equity and aim for equal pay for equal work throughout our Company; and

 

    actively working to promote diversity in the industry and grow the candidate pool for game development roles through financial and other support for certain educational and community programs for underserved youth and college students, including mentoring and exposure opportunities, through organizations such as After School All-Stars, Covenant House, Fresh Air Fund, Games for Change, Girls Make Games, The Animation Project and The School of Interactive Arts, and scholarship programs with New York University and The ESA Foundation.

Cybersecurity. We continue to invest financial and operational resources to implement certain systems, processes and technologies to guard against cyber risks and to help protect our data and systems. Our Audit Committee receives regular reports regarding key cybersecurity, cyber risks and related matters, including secure processing, storage, and transmission of personal and confidential information, such as the personally identifiable information of our users.

Sustainability. We aim to integrate environmental responsibility and sustainability into our operational and product strategies. We will seek to reduce our carbon footprint by the manner through which we bring our games and services to players and by making environmentally-conscious choices in our offices worldwide. We have recently engaged a consultant to assist us in global real estate energy benchmarking and reporting and with finding opportunities both to reduce our carbon footprint and find opportunities for cost savings.

Community. We believe it is important to be part of and to support the communities in which we operate. We have established an employee charitable giving platform, Next Level, through which we match certain employee contributions and otherwise support charitable organizations of our employees’ choosing. In addition to our other volunteerism and giving initiatives, for the months of April and May 2020, our labels came together to donate 5% of Net Bookings (after platform fees) from in-game purchases from Grand Theft Auto Online and Red Dead Online from Rockstar Games, NBA 2K20 and NBA 2K19 from 2K Games, Dragon City from Social Point, as well as from full-game digital sales of The Outer Worlds from Private Division, to support an array of COVID-19 charities and local businesses in need. As a result of this effort, we raised over $10 million and provided support to more than 170 organizations throughout the world, including Covenant House, Doctors Without Borders/Médecins Sans Frontières (MSF), Feeding America, International Medical Corps, Robin Hood Foundation, Akshaya Patra Foundation, War Child, Centrepoint and Save The Children. Our efforts supported food banks, shelters and first responders; provided healthcare workers and hospitals with protective equipment; funded research for a COVID-19 vaccine; provided relief funds for small businesses in the regions where we operate; and endowed numerous industry-related organizations to deliver essential in-home STEM education and game design programs for students. We also made significant donations to organizations that are combating racial injustice, including Lawyers Committee for Civil Rights Under Law, NAACP Legal Defense and Education Fund, Inc., and Southern Poverty Law Center, and we have also matched our employees’ donations to related causes.

 

 

 

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

 

       

Compensation
Committee

 

    

Corporate

Governance
Committee

 

    

Audit

Committee

 

    

Executive
Committee

 

 

Michael Dornemann

    

 

·

    

 

·

    

 

·

    

 

Chair

 

Roland Hernandez

    

 

·

              

 

J Moses

    

 

·

    

 

Chair

    

 

·

    

 

Michael Sheresky

    

 

Chair

    

 

·

         

 

·

 

LaVerne Srinivasan

         

 

·

         

 

Susan Tolson

              

 

Chair

    

 

Paul Viera

              

 

·

    

 

Strauss Zelnick

                   

 

·

 

Meetings in Fiscal 2020

    

 

6

    

 

5

    

 

4

    

 

4

Compensation Committee members are Messrs. Sheresky (Chair), Dornemann, Hernandez and Moses, each of whom is an independent director under NASDAQ’s Rule 5605, a “non-employee director” as defined under the SEC rules. 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 fiscal 2020, the Compensation Committee held six (6) 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, identifying, screening and recruiting director candidates for the Board of Directors and overseeing our environmental, social and governance initiatives. The Corporate Governance Committee held five (5) meetings during fiscal 2020.

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 “Investors,” then “Corporate Governance,” then “Highlights.”

Audit Committee members are Ms. Tolson (Chair) and Messrs. Dornemann, Moses and Viera. The Audit Committee oversees the accounting and financial reporting processes of the Company and audits of the

 

 

 

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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, as well as the Company’s operational risk relating to business continuity planning, cyber, digital and physical security, including security controls over customer data. The Board of Directors has determined that Ms. Tolson and Mr. Viera each qualify as an “audit committee financial expert” under federal securities laws. The Audit Committee held four (4) meetings during fiscal 2020.

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, 2018 (“fiscal 2018”), 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” beginning on page  60.

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 50, 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 2017 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 previously served 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, he 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 52, 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 also serves as a director and member of the audit committee of Phreesia, Inc.

Ms. Goldstein is a CPA with 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, she 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 48, became Executive Vice President and General Counsel of the Company in October 2014 and, effective May 2019, Mr. Emerson was made Chief Legal Officer. 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 Chief Legal Officer 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 2020, 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. Consistent with the approval by our shareholders, on an advisory basis, of an annual advisory vote on the compensation of the named executive officers, 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 2020.

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 2020 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 interests 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 2020 were consistent with our core compensation principles, provided an effective incentive for the achievement of positive results, aligned with shareholders’ interests, are 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 the fiscal year ended March 31, 2020, 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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  Compensation Discussion and Analysis  

 

 

The Compensation Discussion and Analysis section describes the material elements of our executive compensation program for fiscal 2020, 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 Chief Legal Officer

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. We develop and publish products principally through Rockstar Games, 2K, Private Division, and Social Point.

 

 

LOGO

 

Top Sellers Include:

 

 Grand Theft Auto

 

 Red Dead

 

 Max Payne

 

 Midnight Club

     LOGO  

Top Sellers Include:

 

 NBA 2K

 

 Borderlands

 

 BioShock

 

 Mafia

 

 Sid Meier’s  Civilization

 

 WWE 2K

 

 

LOGO

 

 

Top Sellers Include:

 

 The Outer Worlds

 

 Kerbal Space Program

     LOGO  

Top Sellers Include:

 

 Dragon City

 

 Monster Legends

 

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 virtual currency, add-on content, and in-game purchases.

Our management team and creative talent at Rockstar Games, 2K, Private Division, and Social Point, 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.

 

 

 

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Select Fiscal 2020 Performance Highlights

 

The Company delivered strong financial results in fiscal 2020 and continued to execute successfully on our strategy to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres.

 

 

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Business Highlights

 

    Delivered record Net Revenue of $3.09 billion, Net Income of $404.5 million, Net Bookings of $2.99 billion, including digitally-delivered Net Bookings of $2.44 billion and Net Bookings from recurrent consumer spending, which grew 34% and accounted for 51% of total Net Bookings. Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period, and includes licensing fees, merchandise, in-game advertising, strategy guides and publisher incentives;  

 

    Launched NBA 2K20, which continued to build on the Company’s industry-leading basketball series’ track record of annual growth. To date, NBA 2K20 has sold-in more than 12 million units and we expect that lifetime Net Bookings from NBA 2K20 will be the highest ever for a 2K sports title;

 

    Grand Theft Auto Online and Grand Theft Auto V continued to be significant contributors to our results. Grand Theft Auto Online delivered record recurrent consumer spending and was up 40% over fiscal 2019. Grand Theft Auto V has now sold-in over 130 million units worldwide. According to the NPD Group, Grand Theft Auto V was the best-selling game of the past decade in the U.S., based on both units and dollar sales;  

 

    Launched Borderlands 3, which received critical acclaim and has sold-in over 10 million units, up 50% over Borderlands 2 in the same period. We expect lifetime units from Borderlands 3 to be a record for the series;

 

    Released Red Dead Redemption 2 for PC. To date, Red Dead Redemption 2 has sold-in more than 31 million units worldwide. According to the NDP Group, the title was the top title of the last four years based on U.S. dollar sales;

 

    Private Division launched two new games: Ancestors: The Humankind Odyssey and The Outer Worlds. The Outer Worlds won more than 75 awards and has sold-in in over 2.5 million units to date; and

 

    The Company’s fiscal 2020 results were also enhanced by a variety of other offerings, led by NBA 2K19, Sid Meier’s Civilization VI, Social Point’s mobile games, and the WWE 2K series.

 

 

 

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Our strong financial performance in fiscal 2020 reflects the strategic steps management has taken the past several years to strengthen our balance sheet, grow and diversify the Company’s franchise portfolio, and reduce costs. The table below illustrates the Company’s cumulative total stockholder return over the last five years as compared to the NASDAQ composite index and other industry peers.

Comparison of 5 Year Cumulative Total Return*

Among Take-Two Interactive Software, Inc., the NASDAQ Composite Index and a Peer Group

March 2020

 

 

LOGO

 

*

The graph and chart assume $100 was invested on March 31, 2015 in the applicable stock or index and that all dividends were reinvested. Peer Group consists of Activision Blizzard, Inc. and Electronic Arts Inc.

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 2019, our executive compensation program was approved by shareholders representing 94.8% of the votes cast on the proposal.

To enhance our understanding of our shareholder’s perspectives, we maintain a regular shareholder outreach program, including making Take-Two’s management and Board of Directors available for discussions. In the months leading up to the filing of this Proxy Statement, we sought discussions with holders of over 69% of our outstanding shares (percentage based on the Company’s investors’ most recent filings at the time of outreach) and had discussions with a number of our top holders. Throughout these discussions, we sought shareholder feedback on a wide range of topics, including the ZelnickMedia management agreement, environmental, social and corporate governance (“ESG”) matters, and Board composition matters. Feedback from shareholders was generally positive on our compensation policies, ESG and Board composition matters, with some of our shareholders inquiring about the details of our management agreement with ZelnickMedia, our various governance policies, executive compensation, how we retain creative talent, and our policies on workplace diversity and sustainability.

The Company has shown responsiveness to investor concerns and evolving market practices, including eliminating the Adjusted EBITDA “catchup” metric in performance-based awards, adopting a relative TSR metric in the long-term incentive plan, and amending the Company’s bylaws to change the standard for uncontested director elections from a plurality voting standard to a majority vote standard.

 

 

 

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Also in response to shareholder feedback, we formed a management committee with respect to environmental, social and governance matters, which is overseen by the Corporate Governance Committee. The management committee evaluates and administers the Company’s environmental, social and governance efforts. We have also enhanced, and we intend to continue to enhance, our disclosure related to certain human capital and sustainability matters. See “Election of Directors (Proposal 1)—Corporate Governance and Board Matters—Environmental, Social and Governance Matters” for additional detail.

The Committee also negotiated a number of changes in the ZelnickMedia Management Agreement in our fiscal year ended March 31, 2014 as a result of shareholder feedback, as detailed under “ZelnickMedia Management Agreement” below. Based on the positive response from shareholders to these changes, we maintained them when we negotiated a new management agreement with ZelnickMedia in fiscal 2018, also 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.

On November 17, 2017, the Company and ZelnickMedia entered into a new management agreement (the “2017 Management Agreement”) that, effective on January 1, 2018, superseded the prior management agreement with ZelnickMedia (the “2014 Management Agreement”), under which ZelnickMedia will continue to provide management, consulting and executive level services to the Company through March 31, 2024. In response to feedback that the Board of Directors received from our shareholders and the increasing importance of revenue from recurrent consumer spending on the Company’s business, the 2017 Management Agreement includes a new operational metric based on growth in recurrent consumer spending as one of the performance criteria for performance-based equity. The 2017 Management Agreement includes the following features that were implemented to address feedback from shareholders:

 

   

Increased disclosure. Enhanced disclosure 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 2017 Management Agreement has an annual equity grant structure, including an initial grant that was made on April 13, 2018 and the choice, in its discretion, for the Compensation Committee to grant additional annual equity awards in subsequent years. All annual equity awards to ZelnickMedia in 2018, 2019 and 2020, are described below.

 

   

Eliminated “catch-up” provision. In the 2017 Management Agreement, performance-based equity grants are based solely on relative TSR, RCS performance and IP performance and do not include any TSR “catch-up” opportunity.

 

   

Lengthened the performance measurement period of performance-based equity. In the 2017 Management Agreement, the relative TSR performance measurement period continues to be a two-year period instead of a one-year period.

 

 

   

Eliminated automatic annual fee increases. There is no automatic increase in the annual fee during the term of the 2017 Management Agreement.

 

   

IP and Recurrent Consumer Spending metrics continue to focus executives’ attention on achieving key strategic goals. Under the 2017 Management Agreement, performance shares vest based on (i) TSR, (ii) growth in recurrent consumer spending (which consists of the consolidated net bookings generated by the Company from the sale of virtual currency, add-on content, in-game purchases and similar items that are supplemental to the sale of any full game release) during the measurement period as compared to the base year, and (iii) the performance of our interactive entertainment products, including our new products and 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 now has 11 franchises with individual titles that have sold-in to retail more than 5 million units each, and more than 66 individual, multi-million unit selling titles. 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. The Lead Independent Director also regularly engages with members of the executive team, including non-ZelnickMedia members of management.

NEO Compensation Structure and Pay-for-Performance Principles

 

The Compensation Committee 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.

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 2017 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 and no more than 40 percent to Mr. Slatoff, respectively. See “Certain Relationships and Related Transactions—Management Agreement” for additional detail.

The 2017 Management Agreement emphasizes performance-based, at-risk compensation and equity with greater than one-year vesting, to ensure close alignment 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.

Our Compensation Committee establishes the annual cash incentive 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

 

 

 

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each fiscal year. Refer to Annex A herein for a reconciliation of GAAP net income to the Adjusted EBITDA measure discussed above. 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.

In setting what it believes is the appropriate Adjusted EBITDA target at the beginning of each fiscal year, the Board of Directors works closely with management as part of an iterative process to set the budget and determine an appropriate target based on the Company’s goals and objectives for the upcoming fiscal year. The factors considered in determining the appropriate annual Adjusted EBITDA target include the Company’s projected annual release schedule and its expected investment in future research and development. Because release schedules differ year over year, a rigorous target that provides an appropriate incentive for the Company’s executives will vary and may be higher or lower than the prior year’s actual adjusted EBITDA. Because, among other things, (i) the Company did not plan for the release schedule for fiscal 2020 to be as robust as the release schedule for the fiscal year ended March 31, 2019 (“fiscal 2019”) and (ii) the Company planned to spend more money on internal research and development in fiscal 2020 than was spent in fiscal 2019, the fiscal 2020 Adjusted EBITDA target was set at a level below the actual Adjusted EBITDA achieved in fiscal 2019. For further discussion of our results for fiscal 2020, please see “Compensation Discussion and Analysis-Select Fiscal 2020 Performance Highlights” on page 22. The 2017 Management Agreement provides for an absolute cap on the annual incentive opportunity. Target Adjusted EBITDA goals were met in each of the last eight fiscal years, and the Company achieved the maximum Adjusted EBITDA goal in fiscal 2020 after failing to do so in fiscal 2019.

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 incentives in the 2017 Management Agreement continues to include performance-based shares that vest based on TSR performance and “IP” performance and, in response to feedback that the Board of Directors received from our shareholders and the increasing importance of revenue from recurrent consumer spending on the Company’s business model, introduces a new metric—“Recurrent Consumer Spending” performance. The Recurrent Consumer Spending metric incentivizes an increased focus on growth in revenue from virtual currency, add-on content and in-game purchases.

The 2014 Management Agreement included performance-based shares that vest based on TSR performance, “New IP” performance and “Major IP” performance. Relative TSR performance aligned the interests of ZelnickMedia and our executives with our shareholders generally. We sought to incentivize strong sales performance of “New IP” (new interactive entertainment products) to foster creation of additional successful franchises. The “Major IP” category was broader, including existing interactive entertainment products and products derived from existing products, as well as new products, as we sought to build on our major, most profitable franchises. For the long-term incentive RSUs granted under the 2014 Management Agreement that were eligible to vest in fiscal 2020, for the two (2)-year measurement period ended March 31, 2019, 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.

 

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

The following table summarizes the compensation components of the 2017 Management Agreement:

 

Compensation

Component

  % Linked to
Performance
  Delivery From   Performance Link

Annual Base Fee

    Cash  

Annual Incentive

  100%   Cash   Adjusted EBITDA(1)

    Long-Term Incentive    

(Equity Grants)

 

55% at target

 

71% at maximum

  Time-Based Awards(2)  

 

 

Performance-

Based Awards

 

75%: Relative TSR Performance(3)

 

12.5%: Recurrent Consumer Spending

Performance(4)

 

12.5% IP Performance(5)

 

(1)

The table below describes the payout schedule for the annual incentive opportunity, with proration on a straight-line basis between the amounts listed:

 

 

  Percentage of Adjusted

  EBITDA Target Obtained

   Amount of
Annual Bonus
 

80% or less

  

$

0

 

90%

  

$

1,860,000

 

100%

  

$

3,720,000

 

110%

  

$

4,517,143

 

120%

  

$

5,314,286

 

130%

  

$

6,022,857

 

140%

  

$

6,731,429

 

150%

  

$

7,440,000

 

Above 150%

  

$

7,440,000

 

 

(2)

Awards will vest on April 13, 2021 for the grant made on April 15, 2019 and will vest on April 13, 2022 for the grant made on April 13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such date.

 

(3)

Relative TSR performance-based vesting is a function of the Company’s TSR during the performance period, as compared to the TSR 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 compensation 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

 

 

 

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(4)

Recurrent Consumer Spending performance-based vesting is determined by comparing the following two measurements and using the measurement that results in the greatest number of RSUs vesting: (i) the percentage change between the Recurrent Consumer Spending for the base fiscal year (which is the fiscal year prior to the fiscal year in which the grant was made) and the two-year average Recurrent Consumer Spending for the two fiscal years following the base fiscal year (“Absolute Recurrent Consumer Spending Growth”) and (ii) the two-year average Recurrent Consumer Spending the two fiscal years following the base fiscal year as a percentage of the two-year average total net bookings for the same period (“Relative Recurrent Consumer Spending”). Recurrent Consumer Spending consists of the consolidated net bookings generated by the Company that are supplemental to the sale of any full game release from the sale of virtual currency, add-on content, in-game purchases and similar items, calculated on a basis consistent with how the Company calculates recurrent consumer spending for its management reporting. The table below describes the vesting schedule for the Recurrent Consumer Spending performance-based shares (with the measurement that results in the greatest number of RSUs vesting being determinative):

 

  Absolute Recurrent Consumer Spending Growth
  (during the relevant measurement period)
   Absolute Recurrent
Consumer
Spending Vesting
Percentage

Less than 3%

  

     0% of target shares

3%

  

     50% of target shares

6%

  

     100% of target shares

9% or greater

  

     200% of target shares

 

 

  Relative Recurrent Consumer Spending (as a
  percentage of two-year average total net bookings)
   Relative Recurrent
Consumer
Spending Vesting
Percentage

Less than 27.5%

  

     0% of target shares

27.5%

  

     50% of target shares

37.5%

  

     100% of target shares

47.5% or greater

  

     200% of target shares

 

(5)

IP performance-based vesting is a function of the number of units “sold-in” (sell-in performance) with respect to certain releases of IP during the performance period. IP consists of any commercially-released interactive entertainment products, and products that are derived from such existing products. This metric underscores and promotes our long-term strategy of creating additional strong franchises and building game franchises through game sequels. The table below describes the vesting schedule for the IP performance-based shares:

 

  IP Sell-In Performance    IP Vesting Percentage

Less than 6,000,000 units

  

     0% of target shares

6,000,000 units

  

     50% of target shares

8,000,000 units

  

     100% of target shares

10,000,000 units or greater

  

     200% of target shares

 

 

 

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Compensation of Other Named Executive Officers

In fiscal 2020, Ms. Goldstein and Mr. Emerson were compensated through three primary components: base salary, annual incentive and long-term incentives, the majority of which was performance-based and weighted toward long-term incentives.

 

Compensation

Component

% Linked to
Performance
Delivery Form Performance Link

Annual Base Salary

Cash

Annual Incentive

100%

Cash

Adjusted EBITDA

Long-Term  Incentive (RSUs)

 

66.7% at target

 

80% at maximum

 

Time-Based Awards(1)

 

 

Performance-Based

Awards(2)

Relative TSR

 

(1)

Awards will vest, subject to continued employment, 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.

(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 2017 Management Agreement, as described above) will 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. For example, the performance-based portion of the restricted stock units (“RSUs”) granted to Ms. Goldstein and Mr. Emerson on June 1, 2019 will vest, if at all, 50% on June 1, 2021 and 50% on June 1, 2022.

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 2017 Management Agreement is also predominantly weighted towards at-risk compensation consisting of: (1) RSUs, of which 55% vest subject to the satisfaction of performance criteria, and (2) cash compensation, with over 70% of the maximum aggregate cash compensation in the form of an annual incentive based upon the Company’s performance.

The following chart illustrates the fiscal 2020 compensation mix, based on maximum compensation opportunities, for ZelnickMedia and for our other NEOs.

 

 

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Fiscal 2020 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 table summarizes the Company-wide targets and actual results for both ZelnickMedia and NEO performance-based cash compensation paid and equity compensation granted in fiscal 2020.

 

Incentive

Component

  Financial
Performance
Metrics
  2020 Performance
Threshold
  2020 Performance
Target
  2020 Performance
Maximum
  2020 Actual
Performance
Annual Incentive    Adjusted
EBITDA
  $416.3 million   $520.4 million   $780.6 million   $787.4 million

Performance-

Based RSUs

 

(Fiscal 2020

Grant)

  Relative TSR   40th Percentile   50th Percentile   75th Percentile  

N/A: Relative
TSR is measured
over the approximate two-

year period ending March 31, 2021

For a description of the results and payout levels for performance-based RSUs previously granted to ZelnickMedia and the NEOs that vested, or failed to vest, in fiscal 2020, see “Detailed Discussion and Analysis—Principal Elements of Executive Compensation—Long Term Equity Incentives—NEO Long-Term Incentive Awards Vested in Fiscal 2020” and “Certain Relationships and Related Transactions—Management Agreement—Awards under the 2014 Management Agreement.”

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 2017 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

 

 

Meaningful stock ownership requirements (6x per annum management fee (excluding any bonuses) for CEO/Chairman and President; 3x annual base salary 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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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

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 2020 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, sustainable 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, and 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, in some years, have higher equity usage for share plans than some of our peers. The Board of Directors periodically authorizes share repurchases when it believes 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 2017 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 November 17, 2017, the Company and ZelnickMedia entered into the 2017 Management Agreement, effective January 1, 2018, which superseded the prior 2014 Management Agreement. Like the 2014 Management Agreement, the 2017 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 2020 are detailed below under “Fiscal 2020 Fees and Incentives to ZelnickMedia.”

The target compensation opportunity for ZelnickMedia under the 2017 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 2017 Management Agreement establish the payments and benefits to which ZelnickMedia is entitled as consideration for providing certain valuable and unique 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 that 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 regularly engages with members of the senior management team to discuss the business strategy of the Company in greater detail and provide additional guidance to such members of management.

 

 

Fiscal 2020 Fees and Incentives to ZelnickMedia

During fiscal 2020, in accordance with the 2017 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.

 

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

Compensation to ZelnickMedia for fiscal 2020 under the 2017 Management Agreement is summarized below:

 

Annual
Management Fee
  Annual Incentive
Compensation
  Performance-
Based RSUs
  Time-Based RSUs   Total Compensation

$3,100,000(1)

 

$7,440,000(2)

 

$10,725,000(3)

 

$8,775,000

 

$30,040,000

 

(1)

Fixed annual fee per the 2017 Management Agreement.

(2)

Adjusted EBITDA achieved was 151.3% of budgeted target. As a result, ZelnickMedia earned the maximum annual incentive.

(3)

Grant made on April 15, 2019 and amount assumes that the target TSR performance, Recurrent Consumer Spending performance and sales performance in connection with the releases of IP vesting criteria with respect to the performance-based RSUs are met, resulting in the vesting of 111,886 RSUs. If the maximum vesting criteria for all of the performance-based RSUs are met, 223,772 RSUs would vest.

Compensation of Mr. Zelnick and Mr. Slatoff

Under the 2017 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. These individual caps continue 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 2017 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 2017 Management Agreement, and subject to the limitations above, the actual amount of compensation received by Messrs. Zelnick and Slatoff is determined in the sole discretion of ZelnickMedia.

Mr. Zelnick and Mr. Slatoff continue to 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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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

 

   Fees and Incentives to ZelnickMedia under the 2017 Management Agreement

Under the 2017 Management Agreement, fees and incentives paid to ZelnickMedia for fiscal 2020 and payable for future fiscal years are comprised of the following:

 

    Monthly fee of $258,333.33 ($3,100,000 annually); this fee does not automatically increase during the full six-year and three-month term of the agreement.

 

    Annual bonus opportunity ranging from $0 to $7,440,000, based solely on the Company’s Adjusted EBITDA performance versus pre-established goals; the maximum level is frozen for the full six-year and three-month term of the agreement.

 

    Equity grant, which was made on April 15, 2019. This grant consisted of:

 

    91,543 time-based RSUs, with the number of such units based on $8,775,000 divided by the Company’s 10-day average closing share price prior to April 1, 2019, which vest on April 13, 2021.

 

    223,772 performance-based RSUs (representing the maximum number of performance-based RSUs), with the target number of units of 111,886 based on $10,725,000 divided by the Company’s 10-day average closing share price prior to April 1, 2019. Performance will be measured over the period commencing on April 1, 2019 and ending on March 31, 2021, with units vesting subject to the following pre-defined performance criteria:

 

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

 

    12.5% of performance-based RSUs tied to Recurrent Consumer Spending performance; and.

 

    12.5% of performance-based RSUs tied to IP Performance.

 

    The Compensation Committee has the ability to make future annual equity grants under the terms of the 2017 Management Agreement, but is under no obligation to make additional equity grants.

 

    On April 13, 2020, the Compensation Committee granted ZelnickMedia an equity grant, with the amount based in part on peer benchmarking. The equity grant consisted of:

 

    79,128 time-based RSUs, with the number of such units based on $8,775,000 divided by the Company’s 10-day average closing share price prior to April 1, 2020, which vest on April 13, 2022.

 

    193,424 performance-based RSUs (representing the maximum number of performance-based RSUs), with the target number of units of 96,712 based on $10,725,000 divided by the Company’s 10-day average closing share price prior to April 1, 2020. Performance will be measured over the period commencing on April 1, 2020 and ending on March 31, 2022, with units vesting subject to the following pre-defined performance criteria:

 

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

 

    12.5% of performance-based RSUs tied to Recurrent Consumer Spending performance; and

 

    12.5% of performance-based RSUs tied to IP Performance.

 

 

 

 

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For illustrative purposes only, assuming that ZelnickMedia allocated the maximum 60% of the payments under the 2017 Management Agreement to Mr. Zelnick and the maximum 40% of the payments under the 2017 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
   Min Recurrent Consumer

    Spending Goal

     100% Adjusted EBITDA Goal
   50th Percentile Relative TSR
   Target IP Goal
   Target Recurrent Consumer

    Spending Goal

     150% Adjusted EBITDA  Goal
   75th Percentile Relative TSR
   Max IP Goal
   Max Recurrent Consumer

    Spending Goal

Annual Management Fee   $3,100,000   $3,100,000   $3,100,000

Annual Incentive

Metric: Adjusted EBITDA

  $0   $3,720,000   $7,440,000
Time-Based RSUs   $8,775,000   $8,775,000   $8,775,000

Performance-Based RSUs

Metrics: TSR, IP and Recurrent Consumer Spending Performance

  $0   $10,725,000   $21,450,000
Total Compensation Opportunity   $11,875,000   $26,320,000   $40,765,000
                 
Maximum Opportunity at Each Performance Level          
Strauss Zelnick   $7,125,000   $15,792,000   $24,459,000
Karl Slatoff   $4,750,000   $10,528,000   $16,306,000

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, April 4, 2017, April 2, 2018 and April 4, 2019, ZelnickMedia forfeited 24,750, 27,578, 46,752, 33,174 and 20,396 shares, respectively, of performance-based RSUs due to the failure to meet certain performance conditions.

Additionally, the compensation received by ZelnickMedia and the other NEOs is strongly aligned with the Company’s outperformance on TSR during the same period as evidenced by our ranking in the top quartile (above 75th percentile) of all companies in the NASDAQ Composite Index for fiscal years 2018 through 2020.

III. Other NEO Compensation

 

Other NEOs for fiscal 2020 were Ms. Goldstein, our Chief Financial Officer and Mr. Emerson, our Executive Vice President and Chief Legal Officer. 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 May 2018 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 opportunity, 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 2020 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

$850,000 $850,000 (100% of base salary) $2,000,000

Mr. Emerson

$540,000 $378,000 (70% of base salary) $700,000

 

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

As a result of the Company’s Adjusted EBITDA performance for fiscal 2020, Ms. Goldstein and Mr. Emerson each received the maximum cash bonus for such period in the following amounts: Ms. Goldstein $1,700,000; Mr. Emerson $756,000. For a discussion of the Company’s Adjusted EBITDA goals and performance, see “Compensation Discussion and Analysis—Executive Summary—Fiscal 2020 Variable Compensation Targets and Performance Achievement.”

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.

While the Compensation Committee believes that the peer group consists of a collection of 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 both include the few direct competitors it has in the group, even if larger, and to 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.

Fiscal 2020 Peer Group

The peer group used to evaluate competitive market compensation of NEOs for fiscal 2020 was composed of the following 16 companies:

 

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

 

 Hasbro, Inc.

 

 Sirius XM Holdings Inc.

 

 j2 Global, Inc.

 

 Lions Gate Entertainment Corp.

     

 Mattel, Inc.

The fiscal 2020 peer group is the same as the peer group analyzed for our fiscal 2019 incentive program, except that Pandora Media, Inc. was removed and replaced with Sirius XM Holdings Inc. which purchased Pandora Media in 2019 and is also engaged in other entertainment or consumer content businesses similar to the Company’s business.

 

 

 

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Fiscal 2021 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 fiscal 2021, Frederic W. Cook & Co., Inc. performed a peer group analysis in June 2020 and recommended certain adjustments to the peer group, which were adopted by our Compensation Committee.

The Compensation Committee determined that the following changes should be made to the peer group for purposes of compensation planning for fiscal 2021, as compared to the peer group used for purposes of compensation planning for fiscal 2020: remove Red Hat, Inc., which was acquired by IBM in July 2019, and TiVo Corporation due to its smaller size and weaker business fit following its expected merger with Xperi Corporation in the first half of 2020; add NortonLifeLock Inc., which is similar in size to the Company and also is a consumer technology company, and Roku, Inc., which is engaged in other entertainment or consumer content businesses similar to the Company’s business.

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 2020 are both between the median and 75th percentile of the peer group used by the Company in considering executive compensation.

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

Base salary 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. On May 17, 2018, the Company entered into a third amendment to its employment agreement with Ms. Goldstein to extend the term of the agreement through March 31, 2023. In connection with this amendment, effective as of April 1, 2018, Ms. Goldstein’s base salary was increased to a fixed salary of $850,000 for the remainder of the agreement term, with no automatic, annual cost of living increases, but subject to increase from time to time, as determined by the Company.

Mr. Emerson’s base salary was $540,000 in both of fiscal 2019 and fiscal 2020 based on peer benchmarking. On May 26, 2020, the Compensation Committee determined that the fiscal 2021 base salary for Ms. Goldstein would remain at its fiscal 2020 level based on peer benchmarking, and approved an increase to Mr. Emerson’s base salary for fiscal 2021, effective April 1, 2020, to $625,000, based on Mr. Emerson’s strong individual performance and value to the organization as a key senior leader and peer benchmarking.

 

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

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.

Annual bonus awards for Ms. Goldstein and Mr. Emerson are performance-based and primarily dependent on achievement of budgeted Adjusted EBITDA for the applicable fiscal year. Budgeted Adjusted EBITDA targets are pre-determined at the beginning of the applicable fiscal year. 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. The factors considered in determining the appropriate annual Adjusted EBITDA target include the Company’s projected annual release schedule and its expected investment in future research and development. Because release schedules differ year over year, a rigorous target that provides an appropriate incentive for the Company’s executives will vary and may be higher or lower than the prior year’s actual adjusted EBITDA.

Bonus amounts for Ms. Goldstein and Mr. Emerson in fiscal 2020 were a function of Adjusted EBITDA relative to target, as set forth in the following table:

 

Adjusted EBITDA Achievement    Annual Bonus for Mr. Emerson    Annual Bonus for Ms. Goldstein
Less than 80% of the budget    No bonus earned    No bonus earned
80% - 100% of the budget    25% - 70% of base salary    36% - 100% of base salary
100% - 120% of the budget    70% - 98% of base salary    100% - 140% of base salary
120% - 150% of the budget    98% - 140% of base salary    140% - 200% of base salary
Greater than 150% of the budget    Capped at 140% of base salary    Capped at 200% of base salary

Budgeted Adjusted EBITDA for fiscal 2020 was $520.4 million and the Company achieved actual Adjusted EBITDA of $787.4 million. This Adjusted EBITDA achievement was 151.3% of the budgeted Adjusted EBITDA, which was greater than the maximum of 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

 

$850,000

 

$850,000 (100% of base salary)     

 

$1,700,000 (200% of base salary)     

 

$1,700,000

 

 Mr. Emerson

 

$540,000

 

$378,000 (70% of base salary)     

 

$756,000 (140% of base salary)     

 

$756,000

Long-Term Equity Incentives

Equity is an essential tool to attract and retain highly-skilled employees, including key creative and technical talent, and it aligns the interests of creative employees with our shareholders. Our creative employees at our labels drive our business, are critical to our continued success, and help us build shareholder value. We also 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, and 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.

 

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS   

 

 

All grants made to employees, including the NEOs, are approved by the Compensation Committee. The current outstanding awards granted to our NEOs are governed by the Company’s 2009 Stock Incentive Plan, as amended and restated (the “2009 Plan”) or the Company’s 2017 Stock Incentive Plan, as amended and restated (the “2017 Plan”), which is discussed further in “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements.”

The Company generally uses a mix of performance-based and time-based vesting for NEO long-term equity incentive grants to achieve separate and distinct purposes. 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, while time-based vesting awards emphasize the retention of skilled executives.

NEO Long-Term Incentives Awarded in Fiscal 2020

In May 2019, the Compensation Committee approved an award of 10,953 RSUs, based on a value of $1,050,000 (based in part on peer benchmarking) divided by the average of the closing prices of the Company’s common stock on the ten trading days immediately prior to April 1, 2019, to Mr. Emerson. Based on the revised target annual equity range included in the May 2018 amendment to Ms. Goldstein’s employment agreement, in May 2019, the Compensation Committee approved an award of 31,296 RSUs, based on a value of $3,000,000 (based in part on peer benchmarking) divided by the average of the closing prices of the Company’s common stock on the ten trading days immediately prior to April 1, 2019, to Ms. Goldstein. In each case, the incentive awards were granted in June 2019 and made in recognition of the achievement of their individual performance goals and targets during fiscal 2019 and a desire to incentivize continued strong performance.

The Compensation Committee made the fiscal 2020 grants in the form of two grants of RSUs, rather than 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, 2020 based on 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 Mr. Emerson may range from zero to a maximum of 14,610 (equal to 200% of target), with the number of shares at target performance equal to 7,305; and the actual number of such shares for Ms. Goldstein may range from zero to a maximum of 41,748 (equal to 200% of target), with the number of shares at target performance equal to 20,874.

The relative TSR metric is measured against the NASDAQ Composite Index over a period of two years (for grants made in fiscal 2020 this period is April 1, 2019 to March 31, 2021) to determine achievement of TSR goals. To the extent earned, the awards vest 50% upon the second anniversary of the grant date and 50% one year later. The TSR performance schedule is as follows with proration on a straight-line basis between the amounts listed:

 

TSR Percentile Rank    Shares Earned
as % of
Target

 

Less than 40th Percentile

    

 

 

 

0

 

%

 

40th Percentile

    

 

 

 

50

 

%

 

50th Percentile

    

 

 

 

100

 

%

 

75th Percentile

    

 

 

 

200

 

%

The awards for fiscal 2020 were as follows:

 

 

Time-Based
RSUs (#)

 

 

Time-
Based
RSUs ($)(1)

 

Performance-Based
RSUs (#) (at target)

 

 

Performance-
Based RSUs ($)
(at target)(1)

 

Performance-Based
RSUs (#) (at max)

 

 

Performance-
Based RSUs ($)
(at max)(1)

 

 

Mr. Emerson

 

3,648

 

$350,000

 

7,305

 

$700,000

 

14,610

 

$1,400,000

 

Ms. Goldstein

 

10,422

 

$1,000,000

 

20,874

 

$2,000,000

 

41,748

 

$4,000,000

 

 

 

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(1)

As the aggregate grant date fair values of the shares displayed in the Summary Compensation Table for fiscal 2020 and the Grants of Plan-Based Awards table later in this proxy statement are computed in accordance with stock-based accounting rules, the values in those tables differ from the value displayed in the table above.

NEO Long-Term Incentives Awarded in Fiscal 2021

In May 2020, the Compensation Committee determined that the Company would issue: 9,468 RSUs to Mr. Emerson; and 27,052 RSUs to Ms. Goldstein. The RSUs are comprised of:

 

  (i)

3,153 time-based RSUs for Mr. Emerson and 9,009 time-based RSUs for Ms. Goldstein, in each case that vest in three (3) equal annual installments commencing on June 1, 2020; and

 

  (ii)

6,315 performance-based RSUs at target for Mr. Emerson and 18,043 performance-based RSUs at target for Ms. Goldstein, in each case that vest in two (2) equal annual installments commencing on June 1, 2022, subject to the satisfaction of certain performance criteria based on relative TSR performance during the measurement period.

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 12,630 for Mr. Emerson and 36,086 for Ms. Goldstein (in each case equal to 200% of target).

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 2019 are shown in the Summary Compensation Table on page 47, and the grant date value for the equity grants made in June 2020 will be reflected in the Summary Compensation Table in our proxy statement for the 2021 Annual Meeting of Shareholders.

NEO Long-Term Incentive Awards Vested in Fiscal 2020

The results and payout levels for the performance-based RSUs and/or restricted stock granted to Ms. Goldstein and Mr. Emerson prior to fiscal 2020 that vested, or failed to vest, in fiscal 2020, are as follows:

 

 

 

Performance-Based RSUs and/or
Restricted Stock Vested

(#)

Performance-Based RSUs and/or
Restricted Stock Forfeited

(#)

 

Ms. Goldstein

 

28,584 (1)

 

0

 

Mr. Emerson

 

28,584 (1)

 

0

 

(1)

Represents (i) 19,000 performance-based RSUs originally granted on June 1, 2016, which vested on May 31, 2019, and (ii) 9,584 performance-based RSUs originally granted on June 1, 2017, which vested on May 31, 2019, in each case for which the maximum performance criteria was achieved.

Additionally, the compensation received by the NEOs is strongly aligned with the Company’s outperformance on TSR during the same period as evidenced by our ranking in the top quartile (above 75th percentile) of all companies in the NASDAQ Composite Index for fiscal years 2018 through 2020.

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 2020, see “Certain Relationships and Related Transactions—Management Agreement—Awards under the 2014 Management Agreement.”

 

 

 

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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. 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.

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, for a parking spot at our corporate office in New York, and for home security measures for Mr. Zelnick. We consider the security measures provided to Mr. Zelnick to be a reasonable and necessary expense for the Company’s benefit. Other than the MERP, the club membership fee, the parking spot and home security for Mr. Zelnick, 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 2017 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) (as such terms are defined in the 2017 Management Agreement): (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 2017 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 Recurrent Consumer Spending and 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 2017 Management Agreement provides for “double-trigger” vesting (that is, they require both a change in control of the Company plus a qualifying termination before payments and benefits are paid). Accordingly, if a change in control occurs during the term of the 2017 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 2017 Management Agreement without cause or for good reason.

 

 

 

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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” (as such terms are defined in the CIC Severance Plan), 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 (as amended in May 2018) 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. Ms. Goldstein and Mr. Emerson only receive benefits under the CIC Severance Plan the to the extent such benefits would be greater than the benefits under their employment agreements. See “Executive Compensation—Narrative Disclosure Regarding Equity Plans and Employment Agreements” and “Executive Compensation—Potential 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 of the Internal Revenue Code, as amended (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 six (6) meetings during fiscal 2020. The Compensation Committee regularly meets at least four times during the fiscal year.

Role of Management

When determining NEO compensation, 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 2020, 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. 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.

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

 

 

 

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Compensation Committee retained Frederic W. Cook & Co., Inc. to review the compensation programs for our NEOs and our Board of Directors for fiscal 2020, and to develop recommendations regarding our compensation programs for fiscal 2020 and fiscal 2021.

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 or conflicts between members of the Compensation Committee and the individuals at the consulting firm supporting the Compensation Committee.

VII. Compensation Governance Practices

 

Clawback Policy

Our Corporate Governance Guidelines include 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 “Investors” 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

The 2017 Management Agreement and the stock ownership guidelines policy adopted by the Board of Directors both prohibit, prior to March 31, 2024, ZelnickMedia and any Subject Person (as defined in the 2017 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 2017 Management Agreement) of all shares of common stock of the Company (including any unvested options, restricted stock and RSUs) would be less than six (6) times the per annum management fee (excluding any bonuses).

Other NEOs

NEOs (other than the Executive Chairman and CEO and President who are subject to the requirements described above) shall own shares of common stock having a value equal to three (3) times their annual base

 

 

 

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salary within five (5) years after the date of the adoption of the requirements and future NEOs shall achieve such ownership position within five (5) years after the date of their appointment as NEOs. 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 unvested shares of restricted stock and RSUs are counted toward satisfying the requirements.

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 that 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.
 

 

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 prohibited 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, subject to certain exceptions. However, the Company generally believed that it was in our best interest and that of our shareholders to have the flexibility to pay compensation that was 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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The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) of the Code and, among other things, eliminated the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. As a result, beginning in 2018, compensation paid to certain executive officers in excess of $1 million is generally not deductible, whether or not it is performance-based. In addition, beginning in 2018, the executive officers subject to Section 162(m) of the Code (the “Covered Employees”) include any individual who served as the Chief Executive Officer and Chief Financial Officer at any time during the taxable year and the three other most highly compensated officers (other than the Chief Executive Officer and Chief Financial Officer) for the taxable year, and once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.

The Tax Cuts and Jobs Act includes a transition rule under which the changes to Section 162(m) of the Code described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not materially modified after that date. To the extent applicable to our existing contracts and awards, the Compensation Committee may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing contracts and awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. Moreover, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the Company, the Compensation Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) of the Code if the Compensation Committee determines that doing so is in the best interests of the Company and its shareholders.

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

Roland Hernandez

July 24, 2020

  

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 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 near-term and longer-term goals of the Company by using a mix of short-term and long-term incentives to motivate employees to produce superior results over varying time frames. We believe that the use of long-term incentives for executives provides a

 

 

 

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safeguard against excessive risk-taking. Our long-term incentives are designed to deter unnecessary 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 our clawback policy to the senior executives of the Company, which requires the reimbursement of bonus or incentive compensation and/or the cancellation of outstanding equity previously granted in certain cases.

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 2020 and the compensation programs in place for fiscal 2020, 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, 2020, March 31, 2019, and March 31, 2018, 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)

    

 

 

 

2020

 

    

 

 

 

1

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

87,760

 

 

    

 

 

 

87,761

 

 

Executive Chairman and Chief
Executive Officer

       2019        1                      113,044        113,045
       2018        1                      42,628        42,629

 

Lainie Goldstein

    

 

 

 

2020

 

    

 

 

 

850,000

 

    

 

 

 

4,908,673

 

 

    

 

 

 

1,700,000

 

 

    

 

 

 

18,191

 

 

    

 

 

 

7,476,864

 

 

Chief Financial Officer

       2019        850,000        4,297,214        1,385,500        17,499        6,550,213
       2018        690,051        1,732,624        966,071        14,704        3,403,450

 

Karl Slatoff(4)

    

 

 

 

2020

 

    

 

 

 

1

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

22,512

 

 

    

 

 

 

22,513

 

 

President

       2019        1                      21,036        21,037
       2018        1                      20,628        20,629

 

Daniel Emerson

    

 

 

 

2020

 

    

 

 

 

540,000

 

    

 

 

 

1,717,905

 

 

    

 

 

 

756,000

 

 

    

 

 

 

31,818

 

 

    

 

 

 

3,045,723

 

 

Executive Vice President and
Chief Legal Officer

       2019        540,000        1,503,913        616,140        27,665        2,687,718
       2018        515,000        1,732,624        721,000        28,682        2,997,306

 

(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 2020, see Note 17 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 2020. The amounts above reflect the grant date fair value for these awards, 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-based 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-based 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-based 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

     2020          3,781,534          4,515,046  
     2019          3,175,149          4,494,907  
     2018          1,358,820          1,497,404  

Daniel Emerson

     2020          1,323,374          1,580,072  
     2019          1,111,213          1,573,091  
     2018          1,358,820          1,497,404  

 

(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 2020 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, (iii) a club membership fee paid by the Company on behalf of Mr. Zelnick, used primarily for general corporate and corporate development purposes, (iv) a parking spot for Mr. Zelnick at the Company’s offices located at 110 West 44th Street, New York, New York, 10036 paid for by the Company, and (v) fees for home security measures for Mr. Zelnick in an amount equal to $56,555.16 paid for by the Company. The incremental cost to the Company associated with the home security measures is determined based upon the amount paid by the Company to the applicable outside security provider.

 

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  EXECUTIVE COMPENSATION  

 

 

(4)

As discussed in more detail below, Messrs. Zelnick and Slatoff were compensated for their respective services to the Company during fiscal years 2020, 2019 and 2018 pursuant to the 2014 Management Agreement and the 2017 Management Agreement. The provisions of the 2014 Management Agreement and the 2017 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 both the 2014 Management Agreement and the 2017 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.

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 2020, including performance-based awards and those using time-based vesting. Assumptions used in the calculation of certain dollar amounts are included in Note 17 to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2020.

 

           

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

  Grant Date
Fair Value of
Stock

 Name

 

 

Grant
Date

 

 

Approval
Date

 

 

Threshold
($)

 

 

Target
($)

 

 

Maximum
($)

 

 

Threshold
(#)

 

 

Target
(#)

 

 

Maximum
(#)(3)

 

 

Units(2)
(#)

 

 

Awards
($)(4)

 

 

Strauss Zelnick(5)

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

—  

 

Lainie Goldstein

      6/1/2019       5/26/2019                             20,874       41,748               —       3,781,534    
      6/1/2019       5/26/2019                                             10,422       1,127,139    
                          850,000         1,700,000                                   —       —  

 

Karl Slatoff(5)

   

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

—  

 

Daniel Emerson

      6/1/2019       5/26/2019                                 7,305       14,610               —       1,323,374    
      6/1/2019       5/26/2019                                             3,648       394,531    
                          378,000         756,000                                   —       —  

 

(1)

Represents cash performance bonus opportunities ranging from 0% to 140% of base salary for Mr. Emerson and from 0% to 200% of base salary for Ms. Goldstein. There is no set minimum payout amount. See “Compensation Discussion and Analysis—Annual Cash Incentive.”

(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-based RSUs. Such RSUs will vest, if at all, 50% on June 1, 2021 and 50% on June 1, 2022.

(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 2020, see Note 17 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 2020. 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 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.”

 

 

 

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Narrative Disclosure Regarding Equity Plans and Employment Agreements

 

2017 Stock Incentive Plan

The Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan (the “2017 Plan”) was approved by shareholders on September 15, 2017. Under the 2017 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, restricted stock units and other stock-based awards.

The 2017 Plan replaced the 2009 Plan, which terminated effective upon shareholder approval of the 2017 Plan. From and after the date of such shareholder approval, no additional awards will be made under the 2009 Plan. However, any awards granted pursuant to the 2009 Plan prior to the approval and adoption of the 2017 Plan shall continue to be governed by the 2009 Plan.

Under the 2017 Plan, as of September 15, 2017, the date the Company’s shareholders approved the 2017 Plan, the Company was authorized to issue up to 7,603,745 shares of common stock. In addition, the number of shares of common stock available for issuance under the 2017 Plan are subject to increase by any shares of common stock subject to an award outstanding under the 2009 Plan after September 15, 2017 that become eligible for reuse pursuant to the share recycling provisions of the 2017 Plan. 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.

On July 21, 2020, the Board of Directors approved and adopted the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan. If the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan is approved by the shareholders, the number of shares that may be issued to participants in connection with awards granted will be increased by 2,000,000, which would be added to the 4,744,253 shares available for issuance under the 2017 Stock Incentive Plan as of June 30, 2020. For a more detailed description of the Amended and Restated Take-Two Interactive Software, Inc. 2017 Stock Incentive Plan, see Proposal 3 (“Approval of the Amended and Restated 2017 Stock Incentive Plan”) of this Proxy Statement.

2017 Global Employee Stock Purchase Plan

The Take-Two Interactive Software, Inc. Second Amended and Restated 2017 Global Employee Stock Purchase Plan (the “2017 Global ESPP”) was approved by shareholders on September 15, 2017. The 2017 Global ESPP allows the Company to provide its employees and employees of certain designated subsidiaries and affiliates an opportunity to obtain a proprietary interest in the continued growth and prosperity of the Company through ownership of its shares of common stock. For employees of participating affiliates in countries outside of the United States, the 2017 Global ESPP will be effectuated via separate offerings under one or more sub-plans of the 2017 Global ESPP 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. 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 is 9,000,000 shares. The 2017 Global ESPP became effective as of the first available offering date, which was on May 1, 2018.

Employment Agreements

Lainie Goldstein

Ms. Goldstein serves as Chief Financial Officer pursuant to an employment agreement between the Company and Ms. Goldstein, dated May 12, 2010, as amended on October 25, 2010, August 27, 2012 and May 17, 2018.

 

 

 

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Pursuant to the employment agreement, Ms. Goldstein will continue to serve as Chief Financial Officer of the Company until March 31, 2023, and thereafter for successive one-year periods until either party elects not to renew the term of the agreement (each, a “renewal term”).

On May 17, 2018, the Company entered into a third amendment to its employment agreement with Ms. Goldstein to extend the term of the agreement through March 31, 2023. In connection with this amendment, effective as of April 1, 2018, Ms. Goldstein’s base salary was increased to $850,000 with no automatic, annual cost of living increases, but subject to increase from time to time, as determined by the Company. On May 26, 2020, the Compensation Committee determined that the fiscal 2021 base salary for Ms. Goldstein would remain at its fiscal 2020 level, based on peer benchmarking. Ms. Goldstein will also be eligible to receive an annual bonus during each fiscal year of her employment at target in the amount of 100% 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 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.

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. Effective October 25, 2010, Mr. Slatoff was named to the role of Chief Operating Officer. 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 until termination of the 2017 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 Chief Legal Officer 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 in this capacity 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 $540,000 for fiscal 2020, based in part on peer benchmarking. On May 26, 2020, the Compensation Committee approved an increase to Mr. Emerson’s base salary for fiscal 2021, effective April 1, 2020, to $625,000 based, in part, on peer benchmarking, as well as Mr. Emerson’s strong individual performance and value to the organization as a key senior leader. Mr. Emerson will also be eligible to receive an annual bonus during each fiscal year of his

 

 

 

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employment at target in the amount of 70% of his base salary, based on the achievement of certain financial targets by the Company. Additionally, Mr. Emerson is eligible to participate in the Company’s 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 RSUs outstanding for each of the NEOs as of March 31, 2020:

 

    

 

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

     6/1/2019        10,422        1,236,153        41,748        4,951,730  
     6/1/2018        45,754        5,426,882                
     6/1/2017        11,179        1,325,941                

 

Karl Slatoff(3)

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

 

 

Daniel Emerson

     6/1/2019        3,648        432,689        14,610        1,732,892  
     6/1/2018        16,013        1,899,302                
     6/1/2017        11,179        1,325,941                

 

(1)

Time-based awards and performance-based awards with respect to which the performance criteria have been satisfied, made under the 2009 Plan or the 2017 Plan, which time-based awards vest, subject to continuing employment, 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 and which performance-based awards will vest, if at all, 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.

(2)

Value determined based on the closing price of the Company’s common stock of $118.61 on March 31, 2020, the final business day of fiscal 2020.

(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 remained outstanding and an aggregate of 394,562 time-based and performance-based RSUs (based on the target number of performance-based RSUs eligible to vest) or 611,571 time-based and performance-based RSUs (based on the maximum number of performance-based RSUs eligible to vest) remained unvested as of March 31, 2020. The value of the unvested RSUs based on the closing price of the common stock on March 31, 2020 was $46,798,999 (based on the target number of performance-based RSUs eligible to vest) or $72,538,436 (based on the maximum number of performance-based RSUs eligible to vest).

 

 

 

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Stock Vested During 2020 Fiscal Year

 

The following table sets forth information concerning the vesting of shares of restricted stock held by each of the NEOs during fiscal 2020. 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

     36,610 (2)    $ 3,959,372  

Karl Slatoff(1)

            

Daniel Emerson

     34,488 (3)    $ 3,729,877  

 

(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 April 4, 2019, an aggregate of 208,886 shares of restricted stock held by ZelnickMedia vested. The value realized on vesting of such shares of restricted stock was $19,572,618.

(2)

Represents (i) 19,000 of performance-based RSUs and 3,167 time-based RSUs originally granted on June 1, 2016, which vested on May 31, 2019, (ii) 9,584 performance-based RSUs and 1,595 time-based RSUs originally granted on June 1, 2017, which vested on May 31, 2019 and (iii) 3,264 time-based RSUs originally granted on June 1, 2018, which vested on May 31, 2019. Maximum performance criteria were achieved for all such performance-based RSUs.

(3)

Represents (i) 19,000 of performance-based RSUs and 3,167 time-based RSUs originally granted on June 1, 2016, which vested on May 31, 2019, (ii) 9,584 performance-based RSUs and 1,595 time-based RSUs originally granted on June 1, 2017, which vested on May 31, 2019 and (iii) 1,142 time-based RSUs originally granted on June 1, 2018, which vested on May 31, 2019. Maximum performance criteria were achieved for all such performance-based RSUs.

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. See “Certain Relationships and Related Transactions—Management Agreement” for details regarding certain payments and benefits that ZelnickMedia is entitled to receive upon certain qualifying terminations.

Employment Agreements

Lainie Goldstein

Pursuant to the terms of Ms. Goldstein’s amended employment agreement in effect for fiscal 2020 and future fiscal years, she will be entitled to receive the following severance benefits upon a termination by the Company without cause (including a non-renewal of the agreement as well as her resignation following certain events that

 

 

 

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will be deemed a termination without cause): (i) (w) a continuation of Ms. Goldstein’s then-current base salary for 24 months, (x) 2 times her target bonus of 100% 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 the prior full fiscal year, (ii) reimbursement for the cost of continued health insurance coverage under COBRA or its equivalent for 24 months (or until Ms. Goldstein becomes entitled to coverage with a subsequent employer); and (iii) immediate vesting in all outstanding and unvested restricted equity 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, he 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.
 

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

 

 

 

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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, 2020 pursuant to their employment agreements and the CIC Severance Plan (to the extent the benefits under the CIC Severance Plan would be greater than the benefits under the employment agreements).

 

Lainie Goldstein

  

Termination

Without

Cause ($)(1)

    

Death or

Disability ($)

    

Change in

Control

Termination

Without Cause

or for Good

Reason ($)

   

Change in

Control

Without

Termination ($)

 

Salary Payment

  

 

1,700,000

 

  

 

 

  

 

1,700,000

 

 

 

 

Continuation of Medical Insurance

  

 

17,484

 

  

 

 

  

 

17,484

 

 

 

 

Acceleration of Equity Awards(2)

  

 

8,138,544

 

  

 

8,138,544

 

  

 

8,138,544

 

 

 

 

Bonus Payment

  

 

2,550,000

 

  

 

850,000

 

  

 

2,550,000

 

 

 

 

Stay Bonus

  

 

 

  

 

 

  

 

425,000

 

 

 

425,000

 

  

 

 

    

 

 

    

 

 

   

 

 

 

Total Termination Benefits

  

 

12,406,028

 

  

 

8,988,544

 

  

 

12,831,028

(3) 

 

 

425,000

(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 ($)

Salary Payment

  

 

540,000

 

  

 

 

  

 

810,000

 

 

Continuation of Welfare Benefits

  

 

33,656

 

  

 

 

  

 

50,484

 

 

Acceleration of Equity Awards(2)

  

 

3,710,239

 

  

 

2,384,298

 

  

 

3,710,239

 

 

Bonus Payment

  

 

378,000

 

  

 

 

  

 

567,000

 

 

  

 

 

    

 

 

    

 

 

   

 

Total Termination Benefits

  

 

4,661,895

 

  

 

2,384,298

 

  

 

5,137,723

(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, 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

 

 

 

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  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 $118.61 on March 31, 2020.

(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.

CEO Pay Ratio

 

Under SEC rules, we are required to provide information regarding the relationship between the annual total compensation of Mr. Strauss Zelnick, the Company’s Chairman and Chief Executive Officer, and the annual total compensation of the Company’s median employee (excluding Mr. Zelnick) for fiscal 2020. With respect to the annual total compensation of Mr. Zelnick, we used both the amount reported in the Summary Compensation Table, as required by Item 402(u) or Regulation S-K, and, because such amount does not reflect the amount Mr. Zelnick receives from our payments to ZelnickMedia, the maximum amount Mr. Zelnick was eligible to receive from ZelnickMedia in connection with the fees paid by us to ZelnickMedia under the 2017 Management Agreement for fiscal 2020. We believe this provides a better understanding than the ratio based solely on the amount of Mr. Zelnick’s compensation reported in the “Total” column in the “Summary Compensation Table” included in this proxy statement.

 

 

 Mr. Zelnick’s annual total compensation, as reported in the “Summary Compensation Table” included in this proxy statement, was $87,761.

 

 The total compensation paid to ZelnickMedia in fiscal 2020, as set forth in the “Compensation Discussion and Analysis-Detailed Discussion and Analysis-Compensation to Executive Chairman and CEO and President-Fiscal 2020 Fees and Incentives to ZelnickMedia” section of this Proxy Statement on page 32, was $30,040,000, and the maximum portion that Mr. Zelnick could have received was $18,024,000. When combined with the compensation received by Mr. Zelnick from the Company as reported in the “Summary Compensation Table” included in this proxy statement, the total maximum amount of compensation Mr. Zelnick was eligible to receive was $18,111,761.

 

 The annual total compensation of the median employee (excluding Mr. Zelnick) of the Company (including our consolidated subsidiaries) was $62,816.

 

 Based on the above, for fiscal 2020, the ratio of Mr. Zelnick’s annual total compensation to the annual total compensation of the median employee was:

 

 1.4 to 1 based on Mr. Zelnick’s annual total compensation, as reported in the “Summary Compensation Table” included in this Proxy Statement, or

 

 288.3 to 1 based on the total maximum amount of compensation Mr. Zelnick was eligible to receive from ZelnickMedia and the Company in fiscal 2020.

 

This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Securities Act of 1933, as amended. We determined the median of the annual total cash compensation of our employees as of January 1, 2020, at which time we had approximately 5,753 regular, temporary, and seasonal individuals employed on a full or part-time basis, globally, approximately 2,551 of whom are U.S. employees, and approximately 3,202 (or approximately 55.7% of our total employee population) of whom are located outside of the United States. We did not exclude any of the employees who are located outside of the United States from the pool used to identify the median employee.

 

 

 

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  EXECUTIVE COMPENSATION  

 

 

We then compared the annualized base salaries, bonuses and commissions earned by our employees (other than Mr. Zelnick) to determine the median employee. Once we identified our median employee, we estimated such employee’s annual total compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, yielding the median annual total compensation disclosed above. There are a wide variety of job functions within our company, across numerous global jurisdictions. Accordingly, the compensation paid to our employees differs greatly between departments, experience levels, and locations. We believe that our employees are fairly compensated and appropriately incentivized.

The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation, allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

Compensation of Directors During 2020 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. 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   $275,000  

 

$215,000 restricted stock /

$60,000 cash(1)

Lead

Independent Director Additional Fees

  For Lead Independent Director   $200,000   $100,000 restricted stock / $100,000 cash

Committee Fees

 

Audit

Committee

 

Chair

 

 

$40,000

 

  Other

Members

  $20,000  
  Compensation
Committee
 

Chair

 

 

$30,000

 

  Other

Members

  $15,000  
  Corporate
Governance
Committee
 

Chair

 

 

$20,000

 

  Other

Members

  $10,000  
  Executive
Committee
  Chair

 

  N/A   Lead Independent Director serves
as Executive Committee Chair for
no additional fee
  Other

Independent

Members

  $25,000  

 

(1)

In December 2019, the Compensation Committee recommended, and the Board of Directors approved, effective for fiscal 2021, an increase to the cash portion of the independent directors’ annual retainer to $65,000.

 

 

 

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  EXECUTIVE COMPENSATION  

 

 

Each non-employee director may make an election to receive up to 100% of annual retainer and committee fees in shares of restricted stock. For fiscal 2020, Messrs. Hernandez and Viera elected to receive 100% of these fees in restricted stock.

The restricted stock portion of the annual retainer is granted in four equal quarterly installments and 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 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 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. Under the stock ownership requirements for non-employee directors of the Company, non-employee directors are required to own shares of common stock having a value equal to five 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 2020.

 

Name

  

Fees Earned or

Paid in Cash

($)

    

Stock

Awards

($)(1)

    

Total

($)

 

Michael Dornemann

  

 

205,000

 

  

 

316,865

 

  

 

521,865

 

Roland Hernandez(2)

  

 

40,149

 

  

 

115,409

 

  

 

155,558

 

J Moses

  

 

115,000

 

  

 

216,295

 

  

 

331,295

 

Michael Sheresky

  

 

125,000

 

  

 

216,295

 

  

 

341,295

 

LaVerne Srinivasan

  

 

70,000

 

  

 

216,295

 

  

 

286,295

 

Susan Tolson

  

 

100,000

 

  

 

216,295

 

  

 

316,295

 

Paul Viera(3)

  

 

80,000

 

  

 

216,295

 

  

 

296,295

 

Strauss Zelnick

  

 

 

  

 

 

  

 

 

 

(1)

Represents the aggregate grant date fair value of awards granted to our directors during fiscal 2020, determined under FASB ASC Topic 718, Compensation—Stock Compensation. For additional information with respect to stock awards granted during fiscal 2020, see Note 17 under the heading “Stock-Based Compensation” of the Notes to Consolidated

 

 

 

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  EXECUTIVE COMPENSATION  

 

 

  Financial Statements included in the Company’s Annual Report on Form 10-K for fiscal 2020. 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, 2020, Messrs. Dornemann, Hernandez, Moses, Sheresky and Viera, and Mses. Srinivasan and Tolson held 2,719, 970, 1,856, 1,856, 1,856, 1,856 and 1,856 outstanding unvested restricted stock awards, respectively.
(2)

Mr. Hernandez was elected to the Board of Directors effective September 18, 2019. For fiscal 2020, Mr. Hernandez 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 November 15, 2019 and February 14, 2020, respectively, 180 and 158 shares of stock were granted to Mr. Hernandez with grant date fair values of $22,288 and $17,922, respectively, as computed in accordance with FASB ASC 718, Compensation—Stock Compensation.

(3)

For fiscal 2020, Mr. Viera 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 21, 2019, August 13, 2019, November 15, 2019 and February 14, 2020, respectively, 193, 160, 169 and 168 shares of stock were granted to Mr. Viera with grant date fair values of $20,024, $20,405, $20,926 and $19,056, respectively, as computed in accordance with FASB ASC 718, Compensation—Stock Compensation.

Compensation Committee Interlocks and Insider Participation

 

During fiscal 2020, Messrs. Dornemann, Hernandez, Moses and Sheresky served as members of the Compensation Committee. During fiscal 2020:

 

    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 16, 2020 (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)

      8,076,341       7.06%  

The Vanguard Group, Inc.(4)

   

 

13,094,339

   

 

11.45%

 

Strauss Zelnick(5)

   

 

795,987

   

 

*    

 

Karl Slatoff(6)

   

 

587,867

 

   

 

*    

 

Lainie Goldstein(7)

   

 

211,654

 

   

 

*    

 

Daniel Emerson(8)

   

 

40,833

 

   

 

*    

 

J Moses

   

 

18,924

 

   

 

*    

 

Michael Sheresky

   

 

60,723

 

   

 

*    

 

Michael Dornemann

   

 

12,062

 

   

 

*    

 

LaVerne Srinivasan

   

 

6,423

 

   

 

*    

 

Susan Tolson

   

 

23,482

 

   

 

*    

 

Paul Viera(9)

   

 

80,452

 

   

 

*    

 

Roland Hernandez

   

 

1,845

   

 

*    

 

All directors and executive officers as a group (11 persons)(10)

   

 

1,252,385

 

   

 

1.09%

 

 

*

Less than 1%.

(1)

Unless otherwise indicated, the address of each beneficial owner is Take-Two Interactive Software, Inc., 110 West 44th Street, New York, New York 10036. 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 16, 2020 and is not deemed to be the beneficial owner of securities that may not be acquired within 60 days after July 16, 2020. 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 16, 2019 have been exercised.

(3)

Based on information contained in a report on Schedule 13G/A filed with the SEC on February 6, 2020.

(4)

Based on information contained in a report on Schedule 13G/A filed with the SEC on February 12, 2020. The Vanguard Group, Inc. reported that Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 130,964 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 99,174 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 113,120 shares of common stock held by Zelnick/Belzberg Living Trust (such shares are indirectly held by Mr. Zelnick), 95,000 shares of common stock held by the Wendy Jay Belzberg 2012 Family Trust (such shares are indirectly held by Mr. Zelnick) and 587,867 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 587,867 RSUs held by ZelnickMedia consist of (a) unvested RSUs granted to ZelnickMedia on April 15, 2019 settleable for up to 315,315 shares of common stock and (b) unvested RSUs granted to ZelnickMedia on April 13, 2020 settleable for up to 272,552 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 2019 grant will vest, if at all, on April 13, 2021, and the 2020 grant will vest, if at all, on April 13, 2022, subject in each case to acceleration or forfeiture under certain circumstances.

(6)

Mr. Slatoff is a partner at ZelnickMedia. The shares listed include 587,867 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 587,867 RSUs held by ZelnickMedia consist of (a) unvested RSUs granted to ZelnickMedia on April 15, 2019 settleable for up to 315,315 shares of common stock and (b) unvested RSUs granted to ZelnickMedia on April 13, 2020 settleable for up to 272,552 shares of common stock. A portion of each grant is subject to

 

 

 

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  VOTING SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  

 

 

  time-based vesting and the other portion is subject to performance-based vesting. The 2019 grant will vest, if at all, on April 13, 2021, and the 2020 grant will vest, if at all, on April 13, 2022, subject in each case to acceleration or forfeiture under certain circumstances.
(7)

The shares listed include (i) 94,985 shares of common stock held by Ms. Goldstein, (ii) 19,221 unvested time-based RSUs held by Ms. Goldstein, and (iii) 97,448 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) 1 share of common stock held by Mr. Emerson, (ii) 6,728 unvested time-based RSUs held by Mr. Emerson, and (iii) 34,104 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 shares listed include 75,000 shares of common stock held by The PEV Revocable Living Trust (such securities are indirectly held by Mr. Viera), which were purchased on the open market in August 2018.

(10)

The 587,867 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 November 17, 2017, and effective January 1, 2018 (the “2017 Management Agreement”), with ZelnickMedia. The 2017 Management Agreement replaced the Company’s previous Management Agreement with ZelnickMedia, dated as of March 10, 2014 (the “2014 Management Agreement”). Upon its effectiveness, the 2017 Management Agreement superseded and replaced the 2014 Management Agreement, except as otherwise contemplated in the 2017 Management Agreement.

Under the terms of the 2017 Management Agreement, ZelnickMedia provides financial and management consulting services to the Company.

Term and Personnel. The 2017 Management Agreement provides for a term through March 31, 2024, unless earlier terminated in accordance with its terms. Under the 2017 Management Agreement, ZelnickMedia continues to provide certain individuals as it deems appropriate for the performance of the 2017 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 2017 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 2017 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 2017 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 2017 Management Agreement, the Company pays a monthly management fee equal to $258,333.33 per month ($3,100,000 annualized). The management fee will not be decreased during the term of the 2017 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 fiscal years ending March 31, 2018, 2019, 2020, 2021, 2022, 2023 and 2024. For each fiscal year (other than for the nine-month period from March 31, 2017 to December 31, 2017), the annual bonus opportunity ranges from $0 (at 80% of the Target, as defined in the 2017 Management Agreement) to $7,440,000 (at 150% of the Target or greater). The annual bonus opportunity will not be increased or decreased during the term of the 2017 Management Agreement. If the 2017 Management Agreement is terminated by the Company without Cause (as defined in the 2017 Management Agreement) or by ZelnickMedia for Good Reason (as defined in the 2017 Management Agreement) (whether before or after a Change in Control (as defined in the 2017 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 (iii) three times the sum of the per annum management fee plus the Target bonus amount.

Expense Reimbursement. Under the 2017 Management Agreement, ZelnickMedia is entitled to the reimbursement of reasonable out-of-pocket expenses in connection with the 2017 Management Agreement and the rendering of services thereunder.

Limits on Compensation. Under the 2017 Management Agreement, no more than 60% of the aggregate compensation payable to ZelnickMedia under the 2017 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).

 

 

 

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  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  

 

 

Restrictions on Sale of Vested Stock. Under the 2017 Management Agreement, prior to March 31, 2024 (or earlier in the event of a Change in Control) ZelnickMedia and any Subject Person (as defined in the 2017 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 2017 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 six times (6x) the per annum management fee (excluding any bonuses).

Awards under the 2017 Management Agreement

Under the 2017 Management Agreement, as further described below, the Company granted RSUs to ZelnickMedia on April 13, 2018 (the “2018 Restricted Units”), on April 15, 2019 (the “2019 Restricted Units”) and on April 13, 2020 (the “2020 Restricted Units”) under the 2017 Plan. The 2018 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 13, 2018, by and between the Company and ZelnickMedia (the “2018 Restricted Unit Agreement”). The 2019 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 15, 2019, by and between the Company and ZelnickMedia (the “2019 Restricted Unit Agreement”). The 2020 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 13, 2020, by and between the Company and ZelnickMedia (the “2020 Restricted Unit Agreement”). Under the 2017 Management Agreement, the Company, in its discretion, may grant additional annual equity awards to ZelnickMedia over the course of the term of the 2017 Management Agreement.

2018 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 86,010 time-based RSUs (such number determined by dividing $8,775,000 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, 2018), all of which units vested on April 13, 2020 (the “2018 Time-Based Award”).

Performance-Based Award. The Company granted ZelnickMedia 210,246 performance-based RSUs (the “2018 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 105,123 determined by dividing $10,725,000 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, 2018). The 2018 Performance Award was divided into the following three categories based on the applicable performance-vesting criteria (as described in the 2018 Restricted Unit Agreement): IP Performance-Based Units, Recurrent Consumer Spending Performance-Based Units, and TSR Performance-Based Units. The results and payout levels for the 2018 Performance Award, all of which vested on April 13, 2020, are as follows:

 

 

2018 Performance Award Vested

(#)

 

Based on
Achievement of
IP
Performance-
Vesting Criteria
   Based on
Achievement of
Recurrent Consumer
Spending
Performance-
Vesting Criteria
  

Based on
Achievement of
TSR

Performance-
Vesting Criteria

26,280

  

26,282

  

157,684

2019 Restricted Units.

Time-Based Award. The Company issued to ZelnickMedia 91,543 time-based RSUs (such number determined by dividing $8,775,000 by the average of the closing prices of the Company’s common stock for each trading day

 

 

 

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  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  

 

 

during the 10 trading day period immediately prior to April 1, 2019), which units will vest on April 13, 2021, provided that the 2017 Management Agreement has not been terminated prior to such date (the “2019 Time-Based Award”). Notwithstanding the foregoing, the 2019 Time-Based Award will immediately vest in full if the 2017 Management Agreement is terminated by the Company without Cause or by ZelnickMedia for Good Reason. Conversely, ZelnickMedia will forfeit to the Company all 2019 Restricted Units under the 2019 Time-Based Award if the 2017 Management Agreement is terminated by the Company for Cause or by ZelnickMedia without Good Reason prior to April 13, 2021.

Performance-Based Award. The Company granted ZelnickMedia 223,772 performance-based RSUs (the “2019 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 111,886 determined by dividing $10,725,000 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, 2019) and which have been divided into three categories of vesting as follows: (i) on April 13, 2021, a number of IP Performance-Based Units (as defined in the 2019 Restricted Unit Agreement) will vest equal to the product of (x) the target number of IP Performance-Based Units in such vesting tranche (13,985) multiplied by (y) the IP Vesting Percentage (as defined in the 2019 Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200%, (ii) on April 13, 2021, a number of Recurrent Consumer Spending Performance-Based Units (as defined in the 2019 Restricted Unit Agreement) will vest equal to the product of (x) the target number of Recurrent Consumer Spending Performance-Based Units in such vesting tranche (13,986) multiplied by (y) the Recurrent Consumer Spending Vesting Percentage (as defined the 2019 Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200%, and (iii) on April 13, 2021, a number of TSR Performance-Based Units (as defined in the 2019 Restricted Unit Agreement) will vest equal to the product of (x) the target number of TSR Performance-Based Units in such vesting tranche (83,915) multiplied by (y) the TSR Vesting Percentage (as defined in the 2019 Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200%.

In the event that any portion of the 2019 Performance Award will not have vested as of April 13, 2021 or upon a termination of the 2017 Management Agreement by the Company for Cause or by ZelnickMedia without Good Reason, ZelnickMedia will forfeit to the Company any and all 2019 Restricted Units that have not vested as of such date.

2020 Restricted Units.

Time-Based Award. On April 13, 2020, the Company issued to ZelnickMedia 79,128 time-based RSUs (such number determined by dividing $8,775,000 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, 2020), which units will vest on April 13, 2022, provided that the 2017 Management Agreement has not been terminated prior to such date (the “2020 Time-Based Award”). Notwithstanding the foregoing, the 2020 Time-Based Award will immediately vest in full if the 2017 Management Agreement is terminated by the Company without Cause or by ZelnickMedia for Good Reason. Conversely, ZelnickMedia will forfeit to the Company all 2020 Restricted Units under the 2020 Time-Based Award if the 2017 Management Agreement is terminated by the Company for Cause or by ZelnickMedia without Good Reason prior to April 13, 2022.

Performance-Based Award. On April 13, 2020, the Company issued to ZelnickMedia 193,424 performance-based RSUs (the “2020 Performance Award”), representing the maximum number of performance-based RSUs that are eligible to vest (with the target number of performance-based RSUs of 96,712 based on $10,725,000 divided 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, 2020), which units have been divided into three categories of vesting as follows: (i) on April 13, 2022, a number of Recurrent Consumer Spending Performance-Based Units (as defined in the 2020 Restricted Unit Agreement) will vest equal to the product of (x) the target number of Recurrent Consumer Spending Performance-Based Units in such vesting tranche (12,089) multiplied by (y) the Recurrent Consumer Spending Vesting Percentage (as defined the 2020 Restricted Unit Agreement) on March 31, 2022, which ranges from 0% to 200%, (ii) on April 13, 2022, a number of IP Performance-Based Units (as defined in the

 

 

 

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2020 Restricted Unit Agreement) will vest equal to the product of (x) the target number of IP Performance-Based Units in such vesting tranche (12,089) multiplied by (y) the IP Vesting Percentage (as defined in the 2020 Restricted Unit Agreement) on March 31, 2022, which ranges from 0% to 200%, and (iii) on April 13, 2022, a number of TSR Performance-Based Units (as defined in the 2019 Restricted Unit Agreement) will vest equal to the product of (x) the target number of TSR Performance-Based Units in such vesting tranche (72,534) multiplied by (y) the TSR Vesting Percentage (as defined in the 2020 Restricted Unit Agreement) on March 31, 2022, which ranges from 0% to 200%.

In the event that any portion of the 2020 Performance Award will not have vested as of April 13, 2022 or upon a termination of the 2017 Management Agreement by the Company for Cause or by ZelnickMedia without Good Reason, ZelnickMedia will forfeit to the Company any and all 2020 Restricted Units that have not vested as of such date.

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, the 2016 Restricted Units, the 2018 Restricted Units, the 2019 Restricted Units and the 2020 Restricted Units, the “Restricted Units”) under the 2009 Plan. The 2014 Restricted Units, comprised of both time-based and performance-based RSUs, 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, 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, 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, the 2016 Restricted Unit Agreement, the 2018 Restricted Unit Agreement, the 2019 Restricted Unit Agreement and the 2020 Restricted Unit Agreement, the “Restricted Unit Agreements”). As of the date of this Proxy Statement the 2014 Restricted Units, 2015 Restricted Units and 2016 Restricted Units all vested, or failed to vest, in accordance with their terms prior to fiscal 2020.

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), all of which units vested on April 4, 2019 (the “2017 Time-Based Award”, and together with the 2018 Time-Based Awards, the 2019 Time-Based Awards and the 2020 Time-Based Awards, the “Time-Based Awards”).

Performance-Based Award. The Company granted ZelnickMedia 163,160 performance-based RSUs (the “2017 Performance Award”, and together with the 2018 Performance Award, the 2019 Performance Award and the 2020 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). The 2017 Performance Award was divided into the following three categories based on the applicable performance-vesting criteria (as described in the 2017 Restricted Unit Agreement): New IP Performance-Based Units, Major IP Performance-Based Units,

 

 

 

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and TSR Performance-Based Units. The results and payout levels for the 2017 Performance Award, which vested, or failed to vest, on April 4, 2019, are as follows:

 

 

2017 Performance Award Vested

(#)

 

  

 

2017 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

  

20,394

  

122,370

  

20,396

  

0

  

0

Treatment of Awards.

Upon a termination of the 2017 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 2017 Management Agreement on or after January 1, 2018) 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 2017 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 2017 Management Agreement upon the expiration of the term of the 2017 Management Agreement or otherwise fail to agree to extend the term of the 2017 Management Agreement, all unvested time-vesting restricted stock or units granted during the term of the 2017 Management Agreement on or after January 1, 2018 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 2017 Management Agreement, the 2017 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 2017 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, 2020, all shares of restricted stock or units granted prior to April 1, 2017 have vested and/or have been forfeited pursuant to their terms.

Settlement of Restricted Units.

Pursuant to the 2017 Management Agreement, the Company will have the right to elect to settle the RSUs granted to ZelnickMedia pursuant to the 2017 Management Agreement in shares of the Company’s common stock that will be issued pursuant to the 2017 Plan.

Registration Statement. Pursuant to the 2017 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 most recently filed a registration statement on Form S-3 on April 13, 2020 covering such shares.

 

 

 

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The foregoing descriptions of the 2017 Management Agreement, 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 2017 Management Agreement (and the 2018 Restricted Unit Agreement attached as Exhibit A thereto), which is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 22, 2017 and incorporated herein by reference, the 2014 Management Agreement (and the 2014 Restricted Unit Agreement attached as Exhibit A thereto), which is attached as Exhibit 10.1 to the 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, 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, the 2019 Restricted Unit Agreement, which is attached as Exhibit 10.2 to the Company’s Registration Statement on Form S-3 dated April 15, 2019 and incorporated herein by reference, and the 2020 Restricted Unit Agreement, which is attached as Exhibit 10.2 to the Company’s Registration Statement on Form S-3 dated April 13, 2020 and incorporated herein by reference.

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 for transactions 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.

Transactions with Related Persons

During fiscal 2020, we did not enter into any financial transaction, arrangement or relationship in which a related person had or will have a direct or indirect material interest, in an amount exceeding $120,000, except for the transactions described above with ZelnickMedia and the following transaction which the independent directors of the Board of Directors reviewed, approved and ratified in accordance with its policy on transactions with related persons:

Mr. Zelnick is the Company’s Chairman and Chief Executive Officer and is the founder of and a partner in Zelnick Media Capital. During fiscal 2020, the Company purchased an aggregate of approximately $165,295 of computer server equipment from ITRenew, Inc., a company in which affiliates of Zelnick Media Capital have a controlling stake.

 

 

 

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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 2020, 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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Approval of the

Amended and Restated 2017 Stock Incentive Plan

(Proposal 3)

 

 

 

 

EXECUTIVE SUMMARY OF PROPOSAL

Summary of Proposal:

  

Amend and restate our 2017 Stock Incentive Plan (the “Amended and Restated 2017 Plan”) to increase the share reserve under the Amended and Restated 2017 Plan by 2,000,000 shares of common stock. In addition, the Amended and Restated 2017 Plan also reflects updates to certain plan provisions to address the Tax Cuts and Jobs Act of 2017, which repealed the qualified performance-based exemption from the deduction limitations on compensation paid to certain executives under Section 162(m) of the Code.

Number of Shares Available for Grant under the existing 2017 Plan:

  

4,744,253 as of June 30, 2020

Number of Shares Subject to Outstanding Awards under the existing 2017 Plan:

  

2,474,473 as of June 30, 2020

Number of Total Shares of Common Stock Outstanding:

  

114,338,764 as of June 30, 2020

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 Rockstar Games, 2K, Private Division, and Social Point, drive our business, are critical to our continued success, and help us build shareholder value.

 

 We believe our use of equity throughout Take-Two, and beyond the executive level is a strategic advantage and vital to our ownership culture.

 

 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.

 

 In fiscal 2020, 62% of equity awards granted were used to retain employees at our labels.

 

Fiscal 2020 Share Grant Distribution

 

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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

 

Proposed Amended and Restated 2017 Plan

At the Annual Meeting, the Company’s shareholders will be asked to approve the Amended and Restated 2017 Plan to increase the available shares reserved thereunder by 2,000,000 shares. The Amended and Restated 2017 Plan was approved unanimously by the Board of Directors at its meeting on July 21, 2020. Shareholders are also being asked to approve certain updates to eliminate plan provisions that were included in order to allow the Company to grant awards that would qualify for the “performance-based” compensation for purposes of the exception to the deduction limitation under Section 162(m) of the Code prior to the repeal of such exception under the Tax Cuts and Jobs Act of 2017. Other than these changes, no other changes are contemplated to the Amended and Restated 2017 Plan.

The existing 2017 Plan was approved by our shareholders in September 2017. The Amended and Restated 2017 Plan is designed to enable the Company to offer eligible employees, consultants and non-employee directors, stock-based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s shareholders.

As discussed below, the Board of Directors believes the Amended and Restated 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. As of June 30, 2020, there were 4,744,253 shares available for grant under the existing 2017 Plan. The Company has determined that an increase to the shares reserved under the Amended and Restated 2017 Plan by 2,000,000 shares will allow the Company to continue providing meaningful incentives to its service providers under the Amended and Restated 2017 Plan.

If the Amended and Restated 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 Amended and Restated 2017 Plan, a cash- and stock-based incentive plan, furthers the Company’s goal of creating long-term value for

 

 

 

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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 Amended and Restated 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 Amended and Restated 2017 Plan:

 

    Allows us to recruit and retain top talent. The Board of Directors believes that the proposed increase in the shares available under the Amended and Restated 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 Amended and Restated 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 maintain one single comprehensive long-term incentive plan. The Board of Directors believes that the Amended and Restated 2017 Plan will best serve our long-term goals.

Key Features of the Amended and Restated 2017 Plan

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

 

    Annual limits on awards to individual participants. The Amended and Restated 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 Amended and Restated 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 Amended and Restated 2017 Plan.

 

    Provides for a fixed reserve of shares of common stock. The number of shares of common stock available for grant under the Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 2017 Plan is 10 years.

 

 

 

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    Prohibits repricing of stock options and stock appreciation rights. The Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 2017 Plan is not a “liberal” definition that would be triggered on mere shareholder approval of a transaction.

 

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

 

    Limitation on amendments. Amendments to the Amended and Restated 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.

 

    No automatic grants. The Amended and Restated 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 Amended and Restated 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 existing 2017 Plan as of June 30, 2020, as if the Amended and Restated 2017 Plan is not approved under this proposal):

 

     2017
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

     2,474,473  
  

 

 

 

Total shares of common stock currently available for grant

     4,744,253  
  

 

 

 

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

 

 

 

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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 4.88% 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 Met