SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-12699
ACTIVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4803544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Ocean Park Blvd., Santa Monica, CA 90405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 255-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock Purchase Rights
Common Stock, par value $.000001 per share
------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No __
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on September 30, 2002 was $1,568,157,446.
The number of shares of the registrant's Common Stock outstanding as of July 25,
2003 was 88,102,997.
Activision, Inc. (the "Company" or "Activision") hereby amends its Annual
Report on Form 10-K for the fiscal year ended March 31, 2003, by providing the
information required in Part III, Items 10, 11, 12 and 13 which were not
previously provided in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2003, filed with the Securities and Exchange Commission on
June 19, 2003.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors/Nominees
The names of the nominees, all of whom are presently directors of the Company,
and certain information about them (including their terms of service), are set
forth below:
Name of Nominee Age Principal Occupation Director Since
--------------------------------------------------------------------------------
Robert A. Kotick 40 Chairman and Chief Executive 1991
Officer of the Company
--------------------------------------------------------------------------------
Brian G. Kelly 40 Co-Chairman of the Company 1995
--------------------------------------------------------------------------------
Ronald Doornink 49 President of the Company, 2003
Chief Executive Officer
of Activision
Publishing, Inc.
--------------------------------------------------------------------------------
Kenneth L. Henderson(1)(3) 48 Partner, Bryan Cave LLP 2001
--------------------------------------------------------------------------------
Barbara S. Isgur(1)(2) 61 Consultant 1991
--------------------------------------------------------------------------------
Steven T. Mayer(1)(2) 58 Consultant 1991
--------------------------------------------------------------------------------
Robert J. Morgado(2)(3) 60 Chairman, Maroley Media Group 1997
--------------------------------------------------------------------------------
(1) Member of the Audit Committee. (2) Member of the Compensation Committee.
(3) Member of the Nominating and Corporate Governance Committee.
Mr. Kotick has been a Director of the Company since February 1991 and has served
as Chairman and Chief Executive Officer of the Company since that time. Mr.
Kotick has been a member of the board of directors of Macromedia, Inc., an
information technology supplier based in San Francisco, since April 25, 2002 and
was also elected to the board of directors of Yahoo! Inc., an Internet content
and service provider, on March 11, 2003.
Mr. Kelly has been a Director of the Company since July 1995. He has served as
Co-Chairman of the Company since October 1998. He previously served as President
of the Company from July 1997 to October 1998 and Chief Operating Officer of the
Company from July 1995 to October 1998. He also served as Chief Financial
Officer of the Company from February 1991 until July 1997 and Secretary of the
Company from May 1991 until October 1997. Mr. Kelly holds a law degree from
Fordham University School of Law School and a B.A. degree in accounting from
Rutgers University and is a certified public accountant.
Mr. Doornink has served as a Director of the Company since April 2003. He has
been Chief Executive Officer of Activision Publishing, Inc. ("Activision
Publishing"), the Company's only direct operating subsidiary and the holding
company for all other active subsidiaries, since March 28, 2002. Mr. Doornink
also serves as President of the Company. Mr. Doornink joined Activision in 1998
from ConAgra Foods, Inc. where, for three years, he served as President of the
Hunt-Wesson snack food division. Prior to this, Mr. Doornink worked at the
Procter & Gamble Company for 13 years. Mr. Doornink holds an MBA degree from
Columbia University and an undergraduate degree in economics from the Hogere
Economische School of Arnhem in The Netherlands.
Mr. Henderson has been a Director of the Company since July 2001 and is chairman
of the Nominating and Corporate Governance Committee. From 1987 until July 1,
2002, Mr. Henderson was a partner in the New York City law firm of Robinson
Silverman Pearce Aronsohn & Berman LLP, serving as Vice Chairman of the firm
from 2000 through 2002. As a result of the merger of Robinson Silverman with the
international law firm of Bryan Cave LLP effective July 1, 2002, Mr. Henderson
became a partner of Bryan Cave LLP and serves on the firm's Executive Committee.
Robinson Silverman provided legal services to the Company during the last fiscal
year, and the combined Bryan Cave LLP continues to provide legal services to the
Company. Mr. Henderson graduated cum
2
laude from New York University School of Law in 1979, where he was a Root-Tilden
Scholar and was elected to Order of the Coif. He received a B.A. with high
honors from Auburn University in 1976. Mr. Henderson is the Chairman of the
board of directors of Population Communications International, Inc., a New York
based international not-for-profit corporation of which he has been a director
since 1994.
Ms. Isgur has been a Director of the Company since February 1991 and serves as
chairperson of the Audit Committee. From 1993 until 1998, she was a Senior Vice
President of Stratagem, an investment banking firm specializing in the software
industry. Ms. Isgur also served as President of BSI Consulting from 1990 to
1993. She served as a Vice President of Needham & Co., a high technology
investment banking firm, from 1989 to 1990. During 1988, Ms. Isgur served as a
Vice President at Manufacturers Hanover Securities. From 1985 to 1988, she was a
principal of D.H. Brown Associates. Ms. Isgur was a Vice President and
microcomputer industry analyst at Paine Webber, Incorporated from 1981 to 1985.
Mr. Mayer has been a Director of the Company since February 1991. Mr. Mayer is
an independent multimedia consultant to a number of corporations. From 1984
until 1992, Mr. Mayer was Chairman of the board of directors of Digital F/X,
Incorporated, a manufacturer of video production equipment. Mr. Mayer was a
founder of Atari Corporation in 1973, and served as a Division President of
Warner Communications-Entertainment Software until 1985, when he left to start
Take One Partners, Incorporated, the predecessor to Digital F/X.
Mr. Morgado has been a Director of the Company since February 1997 and serves as
chairman of the Compensation Committee. Mr. Morgado is Chairman of Maroley Media
Group, a media entertainment investment company he established in 1995. From
1985 to 1995, he was the Chairman and Chief Executive Officer of the Warner
Music Group, Inc. Mr. Morgado serves on the board of trustees of the New School
for Social Research and is the Chairman of the board of governors of the Mannes
College of Music. Mr. Morgado is Chairman of the board of directors of World
Communications, Inc., a position he has held since January 1997 and he also has
been a member of the board of directors of Nest Entertainment since January
1996.
None of the Executive Officers of the Company is related to any other Executive
Officer or to any Director, and each holds office at the pleasure of the Board.
As of July 25, 2003, the Executive Officers of the Company were as set forth
below.
Executive Officers
Robert A. Kotick, 40, has been a Director of the Company since 1991 and Chairman
and Chief Executive Officer of the Company since February 1991. Biographical
information regarding Mr. Kotick is set forth under "Directors/Nominees."
Brian G. Kelly, 40, has been a Director of the Company since 1995 and
Co-Chairman of the Company since October 1998. Biographical information
regarding Mr. Kelly is set forth under "Directors/Nominees."
Ronald Doornink, 49, has been a Director of the Company since April of 2003,
Chief Executive Officer of Activision Publishing, the Company's only direct
operating subsidiary and the holding company for all other active subsidiaries,
since March 28, 2002. Mr. Doornink has also served as President of the Company
since 1998. Biographical information regarding Mr. Doornink is set forth under
"Directors/Nominees."
William J. Chardavoyne, 51, Executive Vice President and Chief Financial Officer
since January 2000. Mr. Chardavoyne has more than 28 years of financial and
general management experience with such companies as Movietown.com, MTV Networks
and Sony Pictures Entertainment/Columbia TriStar. Mr. Chardavoyne was also a
principal at Ernst & Young, where he began his career and worked for more than
10 years. He holds a B.B.A. degree in accounting from Hofstra University and is
a certified public accountant.
Lawrence Goldberg, 44, Executive Vice President, Worldwide Studios since October
2000. During the prior 8 years, Mr. Goldberg held various senior management
positions at the Company, including Chief Corporate Officer, Secretary and
General Counsel. Prior to Activision, Mr. Goldberg was an attorney at Rosenfeld,
Meyer and Susman from 1986 to 1994, serving as a partner from 1991 to 1994. From
1984 until 1986, Mr. Goldberg was an attorney at O'Melveny & Myers. Mr. Goldberg
received his law degree from the University of California at Los Angeles and a
B.S. degree in industrial and labor relations from Cornell University.
3
George L. Rose, 41, Senior Vice President, General Counsel and Secretary since
April 2000. Mr. Rose joined Activision in July 1995 and has held various
positions of responsibility within the Business and Legal Affairs Department.
Prior to joining Activision, Mr. Rose was in private practice in Los Angeles
since 1986 with Manatt, Phelps & Phillips; Christensen, Miller et al.; Korbatov,
Rose & Rubenstein; and Katten, Muchin & Zavis. Mr. Rose received his law degree
from Harvard Law School and completed his undergraduate education at the
University of Michigan.
Michael J. Rowe, 42, Executive Vice President, Human Resources since August
1999. Mr. Rowe joined Activision from Disney Consumer Products where he served
as Vice President, Human Resources--North America from January 1998 to July
1999, providing leadership to more than 50 human resource professionals. From
1987 to 1997, Mr. Rowe worked at Pepsico, Inc., where he served in various human
resources leadership roles including as Vice President of the Taco Bell and
Pepsi Cola divisions. Prior to this, Mr. Rowe was employed at General Motors'
corporate headquarters. He holds a B.A. in economics from the University of
Michigan and a Masters in industrial and labor relations from Cornell
University.
Richard A. Steele, 47, President, Activision Distribution since March 1, 2002
and Executive Vice President, International Distribution since June 1999.
Previously, Mr. Steele served as Managing Director of the Company's European
Distribution Operations from November 1997 until June 1999. From 1985 until
November 1997, Mr. Steele was employed by CentreSoft (acquired by the Company in
November 1997), most recently as Managing Director. Mr. Steele holds a B.A.
degree in English and related literature from the University of York.
Kathy Vrabeck, 40, Executive Vice President, Global Publishing and Brand
Management since September 2000. Ms. Vrabeck served as Executive Vice President,
Global Brand Management from August 1999 to August 2000. Prior to joining
Activision, Ms. Vrabeck was Senior Vice President/General Manager with ConAgra
Foods, Inc. where she led a cross-functional business team responsible for $800
million in revenue. Before this, she served in various marketing and sales roles
for the Pillsbury Company and also held positions at Quaker Oats Company and Eli
Lilly & Company. Ms. Vrabeck received a B.A. from DePauw University and an MBA
from Indiana University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Executive Officers and
Directors, and persons who own more than 10% of our common stock, to file with
the SEC initial reports of ownership and reports of changes in beneficial
ownership of common stock and other equity securities of the Company.
To the Company's knowledge, based solely upon a review of the copies of Section
16(a) forms filed with the SEC and written representations from certain
reporting persons that no Forms 5 were required, the Company believes that
during the fiscal year ended March 31, 2003, all filing requirements pursuant to
Section 16(a) of the Exchange Act applicable to the Company's Executive
Officers, Directors and greater than 10% beneficial owners were complied with,
with the following exceptions: each of Messrs. Chardavoyne, Doornink, Rose, Rowe
and Steele failed to file one Form 4 on a timely basis with respect to one
transaction.
4
Item 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Company maintains a policy pursuant to which its non-employee Directors,
defined as Directors who are not employees of the Company or any other affiliate
of the Company ("Non-employee Directors"), are compensated at the rate of
$16,000 per year for his or her regular services as a Director, with an
additional $1,200 for each Board meeting attended in person, $950 for each Board
meeting attended via conference telephone, $1,000 for each meeting of a
committee of the Board of which such Director is a member attended in person,
$750 for each meeting of a committee of the Board of which such Director is a
member attended via conference telephone, $2,500 for each Committee Chairperson,
$1,000 per diem for special assignments and $2,000 additional annual retainer
for audit committee members. Additionally, the Company reimburses all Directors
for their reasonable expenses incurred in attending meetings of the Board.
The Company also has a policy pursuant to which its Non-employee Directors are
eligible to receive non-qualified stock options. Under the guidelines
established by the Board, each Non-employee Director receives an annual grant of
options to purchase 12,500 shares automatically upon re-election, which options
are to be granted on the meeting date with an exercise price equal to fair
market value on that date; and a newly elected Non-employee Director is to
receive a grant of options to purchase 30,000 shares with an exercise price
equal to fair market value on his or her election date. All options will vest
over a two year period in increments of 25% each six months. These are only
guidelines, and the Board retains discretion to make grants outside of such
guidelines as it deems appropriate and to otherwise change the guidelines from
time to time.
The Company maintains a directors' insurance policy which insures the directors
of the Company from any claim arising out of an alleged wrongful act by such
persons in their capacity as directors of the Company. In addition, the Company
has entered into indemnification agreements with its directors containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements require the Company, among other things, to indemnify
such directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of a culpable nature) and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. The
Company believes that these agreements are necessary to attract and retain
qualified persons as directors.
COMPENSATION OF EXECUTIVES
The following table sets forth certain information with respect to the annual
and long-term compensation for services in all capacities to the Company for the
fiscal years ended March 31, 2003, 2002 and 2001, of those persons who were at
March 31, 2003 (i) the Chief Executive Officers of the Company and of Activision
Publishing, Inc., the Company's operating subsidiary, and (ii) the Company's
four other most highly compensated Executive Officers whose salary and bonus
exceeded $100,000. The table also includes information with regard to
compensation of the Co-Chairman due to his length of service with the Company
and senior level position. All such executive officers are collectively referred
to as the "Named Executives."
5
Summary Compensation Table
----------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------ --------------
Other Securities
Name and Fiscal Salary Compensation Underlying
Principal Position Year ($) Bonus ($) ($) Options(#)(17)
----------------------------------------------------------------------------------------------------------------------
Robert A. Kotick 2003 408,375(1) -(2) 4,380(10) 678,000
Chairman, Chief Executive 2002 495,000 - 5,034 198,693
Officer and Director 2001 424,200 - 765 1,718,847
----------------------------------------------------------------------------------------------------------------------
Brian G. Kelly 2003 408,375(1) -(2) 2,775(11) 678,000
Co-Chairman and Director 2002 495,000 - 5,017 198,693
2001 424,200 - 525 1,718,847
----------------------------------------------------------------------------------------------------------------------
Ronald Doornink 2003 425,000 192,694 3,506(12) 1,477,500
Chief Executive Officer, 2002 390,000 199,400(3) 3,282 129,488
Activision Publishing, Inc.; 2001 343,500 - 42,322 341,057
President, Activision, Inc.
and Director
----------------------------------------------------------------------------------------------------------------------
William J. Chardavoyne 2003 325,000 176,666(4) 5,072(13) 152,982
Executive Vice President 2002 305,000 108,000(5) 4,461 69,705
and Chief Financial Officer 2001 191,700 - 2,537 294,785
----------------------------------------------------------------------------------------------------------------------
Michael J. Rowe 2003 285,000 132,668(6) 1,740(14) 32,576
Executive Vice President, 2002 260,000 85,020(7) 1,347 186,060
Human Resources 2001 236,500 - 1,020 142,160
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Lawrence Goldberg 2003 365,000 98,550 2,021(15) 348,000
Executive Vice President, 2002 330,000 132,700(8) 1,728 71,730
Worldwide Studios 2001 283,700 - 536 352,230
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Kathy Vrabeck 2003 365,000 85,848 4,987(16) 348,000
Executive Vice President, 2002 330,000 133,700(9) 1,554 105,480
Global Publishing and 2001 260,800 - 2,308 220,478
Brand Management
----------------------------------------------------------------------------------------------------------------------
(1) Represents salary paid between April 1, 2002 and December 31, 2001. Mr.
Kotick and Mr. Kelly elected to forgo their salary in the amount of
$136,125 for the period from January 1, 2003 through March 31, 2003.
(2) Mr. Kotick's and Mr. Kelly's bonuses were paid in the form of options to
purchase common stock. On April 1, 2003, each was granted options to
purchase 153,000 shares of the Company's common stock which are included in
the column "Securities Underlying Options." Messrs Kotick and Kelly
received the 2003 fiscal year bonus because they achieved specific
performance goals fixed by the Compensation Committee at the beginning of
the year.
(3) Does not include cash bonus of $146,250 that Mr. Doornink elected to
receive in the form of options. Such options to purchase 39,488 shares are
included in the column, "Securities Underlying Options."
(4) Includes a cash payment in the amount of $24,750 that Mr. Chardavoyne
received pursuant to a bonus restructuring plan.
(5) Does not include cash bonus of $91,500 that Mr. Chardavoyne elected to
receive in the form of options. Such options to purchase 24,705 shares are
included in the column, "Securities Underlying Options."
6
(6) Includes a cash payment in the amount of $21,375 that Mr. Rowe received
pursuant to a bonus restructuring program.
(7) Does not include a cash bonus of $78,000 that Mr. Rowe elected to receive
in the form of options. Such options to purchase 21,060 shares are included
in the column, "Securities Underlying Options."
(8) Does not include cash bonus of $99,000 that Mr. Goldberg elected to receive
in the form of options. Such options to purchase 26,730 shares are included
in the column, "Securities Underlying Options."
(9) Does not include cash bonus of $99,000 that Ms. Vrabeck elected to receive
in the form of options. Such options to purchase 26,730 shares are included
in the column, "Securities Underlying Options."
(10) Represents the Company's contribution of $86 to Mr. Kotick's 401(k) plan
and $4,294 of life insurance premiums paid by the Company for the benefit
of Mr. Kotick.
(11) Represents the Company's contribution of $241 to Mr. Kelly's 401(k) plan
and $2,534 of life insurance premiums paid by the Company for the benefit
of Mr. Kelly.
(12) Represents the Company's contribution of $1,041 to Mr. Doornink's 401(k)
plan and $2,465 of life insurance premiums paid by the Company for the
benefit of Mr. Doornink.
(13) Represents the Company's contribution of $846 to Mr. Chardavoyne's 401(k)
plan, $1,494 of life insurance premiums paid by the Company for the benefit
of Mr. Chardavoyne and a discount of $2,732 recognized on the purchase of
common stock pursuant to the Company's 1996 Employee Stock Purchase Plan.
(14) Represents the Company's contribution of $919 to Mr. Rowe's 401(k) and $822
of life insurance premiums paid by the Company for the benefit of Mr. Rowe.
(15) Represents the Company's contribution of $1,115 to Mr. Goldberg's 401(k)
plan and $906 of life insurance premiums paid by the Company for the
benefit of Mr. Goldberg.
(16) Represents the Company's contribution of $1,539 to Ms. Vrabeck's 401(k)
plan, $716 of life insurance premiums paid by the Company for the benefit
of Ms. Vrabeck and a discount of $2,732 recognized on the purchase of
common stock pursuant to the Company's 1996 Employee Stock Purchase Plan.
(17) Includes options to purchase common stock granted in lieu of cash bonuses
("Bonus Options"). Bonus Options are included in the Summary Compensation
Table in the fiscal year in which they are earned versus the fiscal year in
which they are granted. Bonus Options are typically granted in the fiscal
year following the fiscal year on account of which they are earned.
7
The following table sets forth information regarding individual grants of
options to purchase the Company's common stock during the Company's 2003 fiscal
year to each of the Named Executives. All such grants were made pursuant to the
Company's equity compensation plans or approved by the Company's Compensation
Committee. In accordance with the rules of the Securities and Exchange
Commission ("SEC"), the table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective ten
year terms based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end of
the respective ten year option terms. Actual gains, if any, on option exercises
are dependent on the future performance of the Company's common stock. The
hypothetical gains shown in this table are not intended to forecast possible
future appreciation, if any, of the stock price.
Option Grants in Last Fiscal Year
------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at Assumed Rates of Stock
Price Appreciation for Option Term of 10 Years(2)
------------------------------------------------
Individual Grants 5% 10%
-------------------------------------------------------------------------- --------------------
% of Total
Options
Granted to
Securities Employees Exercise Price Price
Underlying In Fiscal Price Expiration Per Aggregate Per Aggregate
Name Options (#) Year(1) ($/Share) Date Share Value Share Value
-------------------------------------------------------------------------------------------------------------------
Robert A. 525,000(3) 5.3% $ 15.2933 7/22/12 $24.91 $ 5,048,768 $39.67 $ 12,797,768
Kotick
131,868(4) 1.3% 18.4067 4/8/12 29.98 1,526,148 47.74 3,868,124
-------------------------------------------------------------------------------------------------------------------
Brian G. 525,000(5) 5.3% 15.2933 7/22/12 24.91 5,048,768 39.67 12,797,768
Kelly
131,868(4) 1.3% 18.4067 4/8/12 29.98 1,526,148 47.74 3,868,124
-------------------------------------------------------------------------------------------------------------------
Ronald 300,000(6) 3.0% 9.4467 2/27/13 15.39 1,782,990 24.50 4,515,990
Doornink
581,250(6) 5.9% 15.2933 7/22/12 24.91 5,589,707 39.67 14,168,957
281,250(7) 2.9% 15.2933 7/22/12 24.91 2,704,697 39.67 6,855,947
225,000(8) 2.3% 15.2933 7/22/12 24.91 2,163,758 39.67 5,484,758
90,000(9) 0.9% 18.4067 4/8/12 29.98 1,041,597 47.74 2,639,997
-------------------------------------------------------------------------------------------------------------------
William J. 2,982(10) * 17.80 6/24/12 28.99 33,369 46.17 84,599
Chardavoyne
30,000(9) 0.3% 18.4067 4/8/12 29.98 347,199 47.74 879,999
120,000(7) 1.2% 18.4067 4/8/12 29.98 1,388,796 47.74 3,519,996
-------------------------------------------------------------------------------------------------------------------
Michael J. 2,576(10) * 17.80 6/24/12 28.99 28,825 46.17 73,081
Rowe
30,000(9) 0.3% 18.4067 4/8/12 29.98 347,199 47.74 879,999
-------------------------------------------------------------------------------------------------------------------
Lawrence 33,000(11) 0.3% 9.6867 3/20/13 15.78 201,079 25.12 509,299
Goldberg
75,000(12) 0.8% 9.6867 3/20/13 15.78 456,998 25.12 1,157,498
30,000(11) 0.3% 9.6867 3/20/13 15.78 182,799 25.12 462,999
150,000(7) 1.5% 14.5467 10/2/12 23.69 1,371,495 37.73 3,477,495
60,000(9) 0.6% 18.4067 4/8/12 29.98 694,398 47.74 1,759,998
-------------------------------------------------------------------------------------------------------------------
Kathy 33,000(11) 0.3% 9.6867 3/20/13 15.78 201,079 25.12 509,299
Vrabeck
75,000(12) 0.8% 9.6867 3/20/13 15.78 456,998 25.12 1,157,498
30,000(11) 0.3% 9.6867 3/20/13 15.78 182,799 25.12 462,999
150,000(7) 1.5% 14.5467 10/2/12 23.69 1,371,495 37.73 3,477,495
60,000(9) 0.6% 18.4067 4/8/12 29.98 694,398 47.74 1,759,998
-------------------------------------------------------------------------------------------------------------------
* Less than one-tenth of one percent (0.1%) of total Company options granted
to employees in fiscal year 2003.
(1) Options to purchase an aggregate of approximately 9,840,000 shares of
common stock were granted during the fiscal year ended March 31, 2003, and
options to purchase approximately 25,796,000 shares of common stock were
outstanding as of March 31, 2003. No share appreciation rights were granted
to any of the Named Executives during the last fiscal year.
8
(2) Based on 90,084,245 shares of common stock outstanding as of March 31, 2003
and the low bid price as of such date of $9.467 per share, holders of
common stock as of such date would realize hypothetical gains over the ten
year period comparable to the option terms reflected in the above table of
$536,271,510, assuming a 5% annualized stock appreciation rate, and
$1,358,740,667, assuming a 10% annualized stock appreciation rate.
(3) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on July 22, 2002, 375,000 of which vest at a
rate of 25% per year beginning on July 22, 2004 and 150,000 of which vest
at a rate of 50% per year beginning on the third anniversary of the date of
the grant. Regardless of the vesting date, none of these options are
exercisable until after July 22, 2006. Of the 525,000 options received by
Mr. Kotick, 102,639 of these options were transferred to 1011 Partners LLC,
of which Mr. Kotick and his wife are the sole members. This option was
granted to Mr. Kotick in connection with the extension of his employment
agreement.
(4) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on April 8, 2002 and vested immediately upon
grant. Messrs Kotick and Kelly received this option grant in connection
with a Compensation Committee determination that they had met certain
performance goals fixed by the Compensation Committee for fiscal year 2002.
(5) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on July 22, 2002, 375,000 of which vest at a
rate of 25% per year beginning on July 22, 2004 and 150,000 of which vest
at a rate of 50% per year beginning on the third anniversary of the date of
the grant. Regardless of the vesting date, none of these options are
exercisable until after July 22, 2006. This option was granted to Mr. Kelly
in connection with the extension of his employment agreement.
(6) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on the date of grant and vest yearly in three
equal installments of 33% beginning on the first anniversary of date of the
grant. 581,250 options were granted to Mr. Doornink in connection with the
execution of his employment agreement. 300,000 options were granted to Mr.
Doornink in connection with the extension of his employment agreement.
(7) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on the date of grant and vest yearly in four
equal installments of 25% beginning on the first anniversary of date of the
grant. Mr. Doornink received this option grant in connection with the
execution of his employment agreement.
(8) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on July 22, 2002 and may vest yearly in three
equal installments of 33% beginning on the first anniversary of the date of
the grant, subject to the Company meeting certain financial performance
targets for each year of vesting. For each year in which the Company does
not meet the applicable performance targets, the applicable options will
vest on July 22, 2007. Mr. Doornink received this option grant in
connection with the execution of his employment agreement.
(9) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on April 8, 2002 and vest ratably in four
equal installments of 25% over a two-year period beginning six months after
the date of grant.
(10) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on June 24, 2002 and vest in full as of April
1, 2004.
(11) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on March 20, 2003 and 50% of which vest
yearly in three equal installments beginning on the first anniversary of
the date of the grant and 50% of which vest on the sixth anniversary of the
date of grant, subject to acceleration upon the Company reaching certain
financial performance targets in fiscal 2004 and fiscal 2005.
(12) Stock options were granted at an exercise price equal to the low bid price
of the Company's common stock on March 20, 2003 and vest yearly in five
equal installments of 20% beginning on the first anniversary of the date of
the grant.
9
The following table sets forth information concerning the exercise of stock
options during fiscal year 2003 by each of the Named Executives and the number
and value at the fiscal year ended March 31, 2003 of unexercised options held by
said individuals.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values
------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End(2)
---------------------- --------------------
Number of
Shares
Acquired on Value
Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------
Robert A. 1,036,503 $ 18,022,060 3,676,437 516,108 $ 13,739,921 $ 647,867
Kotick (3)
-------------------------------------------------------------------------------------------------------------
Brian G. 750,001 13,260,258 3,459,807 618,750 15,591,564 647,888
Kelly
-------------------------------------------------------------------------------------------------------------
Ronald 112,500 1,960,500 751,874 1,477,500 3,670,560 63,892
Doornink
-------------------------------------------------------------------------------------------------------------
William J. - - 97,500 257,982 396,019 768,062
Chardavoyne
-------------------------------------------------------------------------------------------------------------
Michael J. 36,093 622,190 63,750 145,076 163,731 -
Rowe
-------------------------------------------------------------------------------------------------------------
Lawrence 166,500 2,642,972 158,435 492,375 758,787 578,489
Goldberg
-------------------------------------------------------------------------------------------------------------
Kathy 51,093 778,345 130,313 408,937 440,336 394,474
Vrabeck
-------------------------------------------------------------------------------------------------------------
(1) Market value on the date of exercise, less option exercise price.
(2) Based on the NASDAQ closing sale price of the Company's common stock on
March 31, 2003, of $9.633, less the option exercise price.
(3) All of the options were exercised by 1011 Partners LLC, of which Mr. Kotick
and his wife are the sole members.
EMPLOYMENT AGREEMENTS
Robert A. Kotick and Brian G. Kelly, as Chairman and Chief Executive Officer and
Co-Chairman, respectively, each are parties to an amended and restated
employment agreement with the Company. The contracts are identical in all
material respects and terminate on April 1, 2008. If either executive receives a
benefit, whether under his employment agreement or otherwise (including
adjustments to the executive's options), that the other executive does not
receive, the Company will provide the other executive a cash payment equal to
the value of the benefit received by the first executive. The two contracts
provide for annual base salaries of $544,500 for the fiscal year ending March
31, 2003. On each subsequent April 1, each executive's base salary increases to
one hundred ten percent (110%) of his salary for the prior fiscal year and may
be further increased at the Board and Compensation Committee's discretion based
on performance and salary reviews. Each is also entitled to an annual bonus if
the Company achieves financial and business objectives to be agreed upon
annually. Each executive may receive additional performance bonuses at the Board
and Compensation Committee's discretion. Mr. Kotick and Mr. Kelly elected to
forego their salary for the period January 1, 2003 through March 31, 2003 in the
amount of $136,125 each.
To secure the long-term, exclusive commitment of Messrs. Kotick and Kelly, and
to align their long-term financial interests with those of the Company, the
Company granted Messrs. Kotick and Kelly options to purchase up to 525,000
shares each under the 2002 Executive Plan at $15.293 per share (after adjustment
for the 2003 stock split), the low bid price on that date in connection with the
extension of their employment agreements. Options to purchase 375,000 of these
shares will vest in equal yearly installments of 25% beginning on the first
anniversary of date of the grant (i.e. July 22, 2003). Options to purchase the
remaining 150,000 shares will vest in equal yearly
10
installments of 50% beginning on July 22, 2005; these options are subject to
accelerated vesting if certain earnings targets are met. Regardless of vesting,
none of these options are exercisable until July 22, 2005, and unexercised
options will expire on July 22, 2012.
The Company is to maintain a renewable term life insurance policy for ten years
covering each of Messrs. Kotick and Kelly for $3,000,000, naming each
executive's estate or other designee as beneficiary.
If either executive's employment is terminated for any reason, the Company will
pay his salary through the date of termination or death and any unpaid bonuses
for prior fiscal years. If the termination is due to his death, the Company will
pay the pro rata portion of his annual and performance bonuses for the current
fiscal year and, as a death benefit, 300% of his annual salary for the most
recently ended fiscal year. The Company has obtained insurance to cover the
potential costs arising from payments to be made to the executive, his estate,
or his beneficiaries in the event of termination due to his death or disability.
If either executive resigns for "good reason" or the Company terminates him
without "cause" (each as defined in the employment agreements), the resigning or
terminated executive also receives the pro rata portion of his annual and
performance bonuses for the current fiscal year and continued medical benefits
for him, his spouse and minor children, if any, for the longer of two years or
the unexpired term. In addition, the resigning or terminated executive will
receive a termination payment, which shall be the greater of (A) three times the
annual salary and bonuses paid or payable to the executive for the most recently
ended fiscal year, and (B) his salary payable for the unexpired term plus the
annual and performance bonuses payable for the remaining term of the agreement
(based on his bonuses-to-salary ratio for the two prior fiscal years).
If either executive dies, is terminated due to "disability" (as defined in the
employment agreements) or without cause, or resigns for good reason, all of his
options, whether granted under his employment agreement or granted at any time,
before or after, shall vest and be exercisable until the later of the fifth
anniversary of such event or May 22, 2010.
Unless Messrs. Kelly or Kotick resigns for good reason or is terminated for
cause, he and the Company will enter into a four year consulting agreement, at
the end of his employment, which shall provide for his services to the Company
up to 20 hours per month; for fee compensation equal to 80% of his annual salary
the year preceding his termination; for certain continuing medical, vacation,
expense and office benefits; and that he may engage in other activities not
directly competitive with the Company.
If Mr. Kotick or Mr. Kelly is employed by the Company immediately prior to a
Change of Control (as defined in the employment agreements), the Company is
required to pay him in cash an amount equal to (A) the number of shares of
Company common stock underlying each of his outstanding options, times (B) the
amount, if any, by which the exercise price of his options or the "Closing Share
Value", whichever is less, exceeds the "Initial Share Value" (each as defined in
the employment agreements). If the Closing Share Value is greater than the
exercise price of his options, then the executive shall have the right either to
retain the outstanding options, exercise them, or to exchange them for cash
equal to the number of shares underlying the options multiplied by the amount by
which the Closing Share Value exceeds the exercise price. Upon a Change of
Control, all options then held by the executives shall immediately vest and be
exercisable for ten years following the Change of Control, whether or not either
continues to work for the Company. In addition, in the event of a Change of
Control, the exercise price of Messrs. Kotick's and Kelly's options will be
adjusted to equal the lower of the weighted average exercise price of all of Mr.
Kotick's or of Mr. Kelly's options; provided that any options with an exercise
price lower than the weighted average exercise price will not be adjusted.
If Mr. Kotick or Mr. Kelly resigns between three and nine months after a Change
of Control, the resigning executive will receive: (i) a pro rata portion of his
annual and performance bonuses for that fiscal year; (ii) the termination
payment due to him as if he had resigned for good cause; and (iii) the continued
medical benefits due to him and his family as if he resigned for good cause. If
in the opinion of his tax counsel he has, or will receive, any compensation or
recognize any income which constitutes an "excess parachute payment" under the
Internal Revenue Code of 1986, as amended, the Company will pay him a sum equal
to all taxes payable by him in connection with such compensation or income as
well as his taxes on such amount.
The two executives' employment agreements also contain a two (2) year
"non-compete" and "non-solicitation" clause. This clause does not apply in the
event that the Company fails to pay the executive his termination or change
11
of control compensation or otherwise fails to comply with its obligations under
the employment agreements during those two years.
Ronald Doornink is party to an employment agreement with Activision Publishing,
the Company's principal operating subsidiary, which terminates March 31, 2006.
Mr. Doornink serves as President of the Company and Chief Executive Officer of
Activision Publishing, and beginning April 1, 2005, his titles and
responsibilities may be altered, subject to the consent of Activision
Publishing, Inc. on or by October 31, 2004. Mr. Doornink's contract provides for
a base salary for the fiscal year ending March 31, 2003 of $425,000. On April 1,
2003, and on each subsequent April 1, his base salary increases to one hundred
ten percent (110%) of his salary for the prior fiscal year and may be further
increased at the Board's discretion based on performance and salary reviews. Mr.
Doornink may also be eligible for an annual bonus if he and the Company achieve
financial and business objectives to be agreed upon.
In connection with the execution of his employment agreement, and in order to
secure his long-term, exclusive commitment to the Company, the Company granted
Mr. Doornink options to purchase up to an aggregate of 1,087,500 shares of the
Company's common stock at a purchase price of approximately $15.293 per share
(after adjustment for the 2003 stock split), which was the low bid price of the
Company's common stock on the date of grant. The options were issued under the
2001 Plan and the 2002 Executive Plan. The options are scheduled to vest as
follows: (A) 792,187 options will vest in installments of 264,063, 264,062, and
264,062 shares, respectively, on April 1, 2003, April 1, 2004, and April 1,
2005; (B) 70,313 options will vest on April 1, 2006; and (C) 225,000 options
will vest on April 1, 2007, although these 225,000 may vest sooner if certain
conditions are met.
Additionally, in connection with the extension of his employment agreement the
Company granted Mr. Doornink options to purchase up to an aggregate of 300,000
shares of the Company's common stock at a purchase price of approximately $9.447
per share (after adjustment for the 2003 stock split), which was the low bid
price of the Company's common stock on the date of grant. These options were
issued under the 2002 Executive Plan. These options are scheduled to vest yearly
in three equal annual installments beginning on April 1, 2004. By granting these
options, it is believed that Mr. Doornink's long-term financial interests will
become closely aligned will those of the Company.
The Company is to maintain a renewable term life insurance policy for ten years
covering Mr. Doornink for $3,000,000, naming his estate or other designee as
beneficiary.
If Mr. Doornink's employment is terminated, the Company will pay his salary
through the date of his termination. If the termination is due to his death or
disability, the Company will pay any unpaid bonuses for prior fiscal years, the
pro rata portion of any bonus he has earned for the current fiscal year, and
300% of his annual salary for the most recently ended fiscal year (in the case
of disability, less payments received under any Company-funded disability
insurance plan). In addition, the Company shall continue medical coverage for
him (in the case of disability), his spouse, and minor children, if any, for two
years. The Company has obtained insurance to cover the potential costs arising
from payments to be made to the executive, his estate, or his beneficiaries in
the event of termination due to his death or disability. If the Company
terminates him without "Cause" (as defined in the employment agreement), he will
receive the same payments and benefits as if the termination was due to his
death, except that in lieu of receiving 300% of his salary, he shall receive 50%
of his base salary through March 31, 2005, and 100% of his annual bonuses (based
on his bonus-to-salary ratio for the two prior fiscal years) for the remainder
of the original term. If Mr. Doornink is terminated without Cause, the options
he received under his present employment agreement shall vest and be exercisable
until the fifth anniversary of such event, but options issued to him earlier
will vest according to their original schedules.
If Mr. Doornink's employment is terminated (except for Cause), he and the
Company will enter into a consulting agreement effective through March 31, 2007,
which (A) requires that he provide his services to the Company up to 20 hours
per month, (B) requires him to maintain an office at the Company's principal
business location, (C) provides for fee compensation equal to 50% of his base
salary through March 31, 2005, and then $250,000 per year through March 31,
2007, (D) provides for continuing medical, vacation, expense and office benefits
and (E) permits him to engage in other activities not directly competitive with
the Company.
If Mr. Doornink is employed by the Company immediately prior to a Change of
Control (as defined in the employment agreement), and the Change of Control
occurs on or prior to March 31, 2004, 50% of the unvested options granted to Mr.
Doornink under the new employment agreement shall immediately vest.
12
If the Change of Control occurs during the fiscal year ending March 31, 2005,
75% of such unvested options shall immediately vest. If the Change of Control
occurs after fiscal year ending March 31, 2005, all of his unvested options
granted under his new employment contract shall immediately vest. In each of
these cases, the vested options shall remain exercisable for a period of five
years after such Change of Control.
Mr. Doornink's new employment agreement also contains a "non-compete" and
"non-solicitation" clause which is effective during the term of the employment
agreement and during the period of any consulting agreement, and the
non-solicitation clause will stay in effect for an additional two years after
either the end of the consulting agreement or the term of the agreement,
whichever is later.
Activision Publishing has entered into an employment agreement with Lawrence
Goldberg providing for his employment as Executive Vice President, Worldwide
Studios. Mr. Goldberg's employment agreement, as amended, expires on March 31,
2005. Activision Publishing has also entered into an employment agreement with
Kathy Vrabeck providing for her employment as Executive Vice President, Global
Publishing and Brand Management. Ms. Vrabeck's employment agreement, as amended,
expires on March 31, 2005.
Under their agreements, Mr. Goldberg and Ms. Vrabeck each received a base salary
of $365,000 for the fiscal year ended March 31, 2003 and each is entitled to an
annual base salary of $400,000 and $435,000 for the fiscal years ending March
31, 2004 and March 31, 2005, respectively. The foregoing annual base salaries
may be increased based upon performance appraisal and salary review by the
Company. In addition, Mr. Goldberg's and Ms. Vrabeck's employment agreements
entitle each to receive an annual bonus for each fiscal year which is based
upon, among other things, either the Company achieving corporate earning and
operating margin goals (in the case of Mr. Goldberg) or the Company achieving
specified corporate and divisional sales and profitability levels (in the case
of Ms. Vrabeck).
In connection with the renewal and extension of their employment contracts, the
Company in October 2002 granted to each of Mr. Goldberg and Ms. Vrabeck options
to purchase up to an aggregate of 150,000 shares of the Company's common stock
at a purchase price of $14.55 per share (after adjustment for the 2003 stock
split), which was equal to the low bid price of the Company's common stock on
the date of grant. These options vest in equal yearly installments of 25%
beginning on the first anniversary of the grant date. The Company subsequently
granted to Mr. Goldberg and Ms. Vrabeck each options to purchase up to an
aggregate of 75,000 shares of the Company's common stock at a price of $9.69 per
share (after adjustment for the 2003 stock split), which was equal to the low
bid price of the common stock on the date of grant. Beginning April 1, 2003,
such options vest in five yearly installments of 20%.
In addition, in accordance with his employment agreement (i) on January 2, 2001,
the Company granted Mr. Goldberg options to purchase up to an aggregate of
168,750 shares of the Company's common stock at a purchase price of $6.056 per
share (after adjustment for the 2003 stock split), which was equal to the low
bid price of the Company's common stock on the date of grant. Such options vest
at intervals through January 1, 2005; and (ii) on April 1, 2001, the Company
granted to Mr. Goldberg options to purchase up to an aggregate of 45,000 shares
of the Company's common stock at a purchase price of $9.278 per share (after
adjustment for the 2003 stock split), which was equal to the low bid price of
the Company's common stock on the date of grant. All of these options have
vested.
In addition, in accordance to her employment agreement, Ms. Vrabeck is eligible
to receive annual stock options under the Company's stock option plans, at the
discretion of the Board of Directors.
Michael J. Rowe is party to an employment agreement with the Company, providing
for his employment as Executive Vice President, Human Resources. Mr. Rowe's
employment agreement expires on March 31, 2005. Under the agreement, Mr. Rowe
received an annual base salary of $285,000 for the fiscal year ended March 31,
2003, and is entitled to an annual base salary of $305,000 and $325,000 for the
fiscal years ending March 31, 2004 and March 31, 2005, respectively.
Effective as of April 1, 2002, Activision Publishing entered into an employment
agreement with William J. Chardavoyne providing for his employment as Executive
Vice President, Finance. Mr. Chardavoyne's employment agreement expires on March
31, 2005. Under the agreement, Mr. Chardavoyne is received an annual base salary
of $325,000 for the fiscal year ending March 31, 2003, and is entitled to
receive an annual base salary of $345,000 and $365,000 for the fiscal year
ending March 31, 2004 and the fiscal year ending March 31, 2005, respectively.
13
The annual base salaries of Messrs. Rowe and Chardavoyne may be increased based
upon performance appraisal and salary review by the Company. Messrs. Rowe and
Chardavoyne are each also entitled to receive an annual bonus for each fiscal
year during which he is employed under such agreement based upon, among other
things, the Company achieving corporate earning and operating margin goals.
In addition, pursuant to his employment agreement, the Company granted Mr.
Chardavoyne options to purchase up to an aggregate of 120,000 shares of the
Company's common stock at a purchase price of $18.41 per share, which was equal
to the low bid price of the Company's common stock on the date of grant. The
options will vest in four equal annual installments commencing on the first
anniversary of Mr. Chardavoyne's employment.
INDEBTEDNESS OF MANAGEMENT
During fiscal 2003 there were no loans outstanding, nor were any loans extended,
to the Executive Officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Morgado (Chairman), Ms. Isgur and Mr.
Mayer, none of whom is, or has been, an officer or employee of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Responsibilities and Composition
During the 2003 fiscal year, the Compensation Committee consisted of Mr.
Morgado, Ms. Isgur and Mr. Mayer, each of whom meets the definition of
"independent" in the current and proposed rules of the NASDAQ Stock Market. Mr.
Morgado is the Chairman of the committee.
The Compensation Committee reviews and approves the compensation policies and
programs applicable to senior executives of the Company and reviews and approves
the salary, bonus and long term compensation for each of the Executive Officers,
including the Chairman and the Co-Chairman of the Company and the President and
Chief Executive Officer of Activision Publishing. The Compensation Committee is
also responsible for administering the Company's stock option and incentive
plans and the Company's employee stock purchase plans. In September 2002, the
Board adopted a formal charter that describes these responsibilities and
provides that all members of the Compensation Committee must be independent as
defined in applicable regulations and listing standards.
Activision's Compensation Philosophy and Objectives
Activision has formulated and implements its compensation programs and policies
to achieve the following broad objectives:
- Motivate and reward individual and team performance in relation to
Company wide and business unit operating plans and objectives;
- Advance organizational stability by fostering loyalty and by obtaining
contractual commitments from senior employees; and
- Align employee goals with long term growth of stockholder value.
We seek to achieve these objectives by linking a significant portion of
compensation, both annual and long term, to specific performance goals; by
remaining competitive in the market for executive talent; through long term
compensation vesting requirements and executive employment agreements; and
through the grant of stock options.
The Compensation Committee works closely with the Company's Human Resources
Department and with the Chairman, Co-Chairman and President to formulate the
Company's plans and programs and to fix compensation of senior executives,
including the Executive Officers. Among other things, the Company conducts
periodic market surveys to determine the range of salary, benefits, bonus,
equity and other compensation appropriate for the position and for the
particular geographic territory. We recruit senior management from many
established entertainment, consumer products and technology companies, and our
executives are subject to competitive recruiting efforts from
14
these and other companies. We are therefore responsive to market needs when we
formulate our programs and fix senior executive compensation.
Executive Compensation
The key elements of the Company's executive compensation package consist of base
salary, annual incentive bonus and stock options. The Company regularly
evaluates the balance among these three components of compensation in light of
the Company's ongoing recruitment and retention programs and market
requirements. Executive Officer compensation and the Company's general
compensation policies and programs for all senior employees are customarily
reviewed in the fourth fiscal quarter, with adjustments effective at the
beginning of the next fiscal year.
Base Salaries. Each of the Company's Executive Officers has entered into an
employment agreement that sets minimum base salaries for each year of the
agreement. Such base salaries may also be subject to increases based on annual
performance evaluations and salary reviews. The base salary, taken in the
context of the executive's entire compensation package, is intended to be
competitive with base salaries paid to executives with comparable
qualifications, experience and responsibilities at other similar companies and
at the companies with whom Activision competes for talent.
Annual Incentive Bonuses. Consistent with its goal of motivating employees to
achieve Company objectives, Activision believes a significant portion of
compensation should be linked to performance. The Company's annual bonus program
has historically tied annual bonuses to objective criteria, with individual
bonuses and discretionary bonus pools subject to achievement of individual, team
and Company-wide operating plans. Objective criteria and bonus potential,
expressed as a percentage of base salary, are fixed prior to the beginning of
each fiscal year and performance is reviewed and bonuses determined shortly
after fiscal year end. Over time, the Company has regularly refined the annual
performance objectives to better align them with key operating goals and has
also raised the operating objectives to create incentives for improved Company
and business unit performance. For fiscal 2003, the Company continued this
program, with bonus criteria and payouts tied to higher year over year goals
throughout the organization. As a result, overall fiscal 2003 bonus payments
were lower as a percentage of base salaries than in previous years.
Stock Options. We believe that stock options are an essential component of total
compensation. Through options, the interests of executives are aligned with
those of our Stockholders because compensation is directly linked to an increase
in share value. We believe that over time equity based compensation has been a
major factor in Activision's ability to recruit and retain employees and in our
ability to achieve our growth and market position. Many of our competitors for
executive talent rely heavily on stock options and other equity based
compensation, and we expect that this will continue in the future. We believe
therefore that the granting of options is a competitive necessity for the
Company.
Stock options are typically granted to an executive officer when the officer
first joins the Company, in connection with the executive entering into an
employment contract or an extension or renewal of the contract, or in connection
with a significant change in position. Options are also granted annually to
provide incentives for continued employment and retention of employment. All
option grants made by the Compensation Committee are made at fair market value
on the date of the grant and are typically subject to vesting periods.
The Company is focused on an overall shift in the balance of year-end
compensation from stock options to incentive cash bonuses and an overall
reduction in option grant targets as a component of annual compensation. In
fiscal 2003, however, option grants were made in connection with Executive
Officer contract renewals and extensions, employee retention and annual grants.
In addition, in fiscal 2003, we generally lengthened the vesting period for
stock options and effectively linked the ability of Executive Officers to
realize a significant portion of the value of their stock option grants to the
achievement of performance criteria.
Fiscal 2003 Compensation for Chairman, Co-Chairman and Chief Executive Officer,
Activision Publishing.
Each of Messrs. Kotick, Kelly and Doornink is a party to a long term employment
agreement, described under the heading "Employment Agreements," which fixes base
salary and certain benefits. Messrs. Kotick and Kelly are compensated at the
same level.
In a process similar to that described above for Executive Officers, the
Compensation Committee reviews and fixes compensation for Messrs. Kotick, Kelly
and Doornink. At the beginning of the 2003 fiscal year, the Compensation
15
Committee fixed specific performance goals for the year based on overall Company
operating and strategic objectives, including objectives relating to earnings
per share, operating earnings, certain other operating and balance sheet metrics
and capital raising activities. In April, 2003, the Compensation Committee
determined that Messrs. Kotick and Kelly achieved performance goals such that
they should be granted year end bonuses in the form of long term compensation
through stock options. The Compensation Committee therefore approved the grant
of options to each of Messrs. Kotick and Kelly to purchase 153,000 shares at an
exercise price of $9.43 per share (the then fair market value), and no cash
bonus was paid. A portion of the options vest over a three year period and a
substantial portion vest at the end of seven years, but subject to earlier
vesting upon achievement of additional performance criteria. The Compensation
Committee determined that Mr. Doornink had achieved his performance goals such
that he was eligible for a bonus of $192,694, which was approximately 45% of his
base salary.
Robert J. Morgado, Chairman
Barbara S. Isgur
Steven T. Mayer
COMMON SHARE PRICE PERFORMANCE GRAPH
The graph below compares the Company's cumulative total Stockholder return on
its common stock for the period from March 31, 1998 through March 31, 2003, with
the total cumulative return of the NASDAQ Market Index and RDG Technology
Composite Index over the same period. The graph also reflects the comparison to
JP Morgan H & Q Technology Index through March 31, 2002, which no longer exists,
but which had been used by the Company in previous years.
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of the Company's common
stock.
The graph below shall not be deemed to be incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Activision, Inc., The NASDAQ Stock Market (U.S.) Index
The JP Morgan H&Q Technology Index
and the RDT Technology Composite Index
JP Morgan NASDAQ RDG
Activision, H&Q Stock Technology
Inc. Technology Market (US) Composite
----------- ---------- ---------- ---------
Mar-98 100 100 100 100
Mar-99 115.12 139.91 135.08 166.77
Mar-00 112.21 323.64 250.99 332.86
Mar-01 226.17 129.70 100.60 134.97
Mar-02 416.21 115.51 101.32 127.68
Mar-03 201.62 74.38 80.14
*100 invested on 3/31/98 in stock or index-including reinvestment of dividends.
Fiscal year ending March 31.
16
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except where noted, the following table sets forth information, as of June 25,
2003, with respect to the beneficial ownership of the Company's common stock by:
(i) each Stockholder known by the Company to be the beneficial owner of more
than 5% of the Company's common stock; (ii) each person who was a Director and
each nominee for election as director; (iii) each Executive Officer named in the
Summary Compensation Table below; and (iv) all Executive Officers and Directors
as a group. Unless otherwise noted, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by him or her.
Shares Beneficially Owned
--------------------------------------------
Percent
of
Number Right to Outstanding
Beneficial Owner Owned Acquire (1) Shares (2)
--------------------------------------------------------------------------------
FMR Corp. (3) 8,987,434 _ 10.22%
82 Devonshire St.
Boston, MA 02109
--------------------------------------------------------------------------------
UBS Securities LLC (4) 5,011,276 _ 5.70%
1285 Avenue of the Americas
New York, New York 10019
--------------------------------------------------------------------------------
Robert A. Kotick (5) 1,948,622 4,016,935 6.48%
c/o Activision, Inc.
3100 Ocean Park Boulevard
Santa Monica, CA 90405
--------------------------------------------------------------------------------
Brian G. Kelly (6) 610,870 3,800,307 4.81%
--------------------------------------------------------------------------------
Ronald Doornink 60,000 1,060,937 1.26%
--------------------------------------------------------------------------------
William J. Chardavoyne 23,911 191,250 *
--------------------------------------------------------------------------------
Michael J. Rowe 4,500 101,250 *
--------------------------------------------------------------------------------
Lawrence Goldberg 3,772 227,810 *
--------------------------------------------------------------------------------
17
Kathy Vrabeck 5,911 170,625 *
--------------------------------------------------------------------------------
Steven T. Mayer, Director 322 54,188 *
--------------------------------------------------------------------------------
Barbara S. Isgur, Director 1,500 120,188 *
--------------------------------------------------------------------------------
Robert J. Morgado, Director 18,750 186,940 *
--------------------------------------------------------------------------------
Kenneth L. Henderson, Director 1,125 45,938 *
--------------------------------------------------------------------------------
All Directors and Executive
Officers as a Group (13 persons) 2,906,025 10,162,368 13.32%
--------------------------------------------------------------------------------
*Percent of class less than 1%.
(1) Shares that can be acquired within 60 days through the exercise of options
or warrants.
(2) The outstanding shares was computed based on 87,976,440 shares of the
Company's common stock outstanding as of June 25, 2003 and, in each
individual's case, the number of shares of the Company's common stock
issuable upon the exercise of the warrants or options exercisable within 60
days held by such individual, but does not include the number of shares of
common stock issuable upon the exercise of any other outstanding Director
or employee warrants or options or, in the case of all Directors and
Executive Officers as a Group, the number of shares of the Company's common
stock issuable upon the exercise of warrants or options exercisable within
60 days held by all such individuals.
17
(3) The Schedule 13F filed by FMR Corp. with the Securities and Exchange
Commission on March 31, 2003 indicates that it was the beneficial owner of
8,987,434 shares of Common Stock (adjusted for the stock split).
(4) The Schedule 13F filed by UBS Securities LLC with the Securities and
Exchange Commission on March 31, 2003 indicates that it was the beneficial
owner of 5,011,276 shares of Common Stock (adjusted for the stock split).
(5) Includes 42,166 shares owned directly by Delmonte Investments, L.L.C., of
which Mr. Kotick is a controlling person. Does not include options to
purchase 91,551 shares of common stock transferred by Mr. Kotick to an
irrevocable trust for the benefit of his minor children with respect to
which Mr. Kotick disclaims beneficial ownership. Includes options to
purchase 2,205,862 shares of common stock held by 1011 Partners, LLC of
which Mr. Kotick and his spouse are the sole members.
(6) Includes 42,166 shares owned directly by Delmonte Investments, L.L.C., of
which Mr. Kelly is a controlling person.
EQUITY COMPENSATION PLANS
The following table sets forth the aggregate information for the Company's
equity compensation plans in effect as of March 31, 2003 (amounts in thousands,
except per share amounts):
Number of Number of
securities to securities
be issued upon remaining
exercise available for
of outstanding Weighted-average future
options, exercise price of issuance
warrants and outstanding options, under equity
Plan Category rights warrants and rights compensation plans
--------------------------------------------------------------------------------
Equity compensation 8,883 $ 11.69 1,041
plans approved by
security holders
Equity compensation 16,913 $ 8.39 543
plans not approved
by security holders
Total 25,796 $ 9.53 1,584
The Company's Board approved the Activision, Inc. 1999 Incentive Plan, as
amended (the "1999 Plan"), the Activision, Inc. 2002 Incentive Plan, as amended
(the "2002 Plan"), and the Activision, Inc. 2002 Studio Employee Retention
Incentive Plan, as amended (the "2002 Studio Plan"). The 1999 Plan and 2002 Plan
permit the granting of "Awards" in the form of non-qualified stock options,
incentive stock options ("ISOs"), share appreciation rights ("SARs"), restricted
stock awards, deferred stock awards, and other common stock-based awards. The
1999 Plan allows the granting of Awards to any employees of the Company,
including directors, officers, and consultants of Activision. The 2002 Plan,
however, provides for the granting of awards only to non-executive officers,
employees, and consultants of the Company. The 2002 Studio Plan permits the
granting of "Awards" only in the form of non-qualified stock options and
restricted stock awards to key studio employees (including non-executive
officers) and consultants. All of these plans require available shares to
consist, in whole or in part, of authorized and unissued shares or treasury
shares, and all of these plans generally prohibit the Company from reducing the
exercise prices of stock options after they are issued.
As of March 31, 2003, approximately 55,500 shares were available for grant under
the 1999 Plan; approximately 420,000 shares were available for grant under the
2002 Plan; and approximately 67,500 shares were available for grant under the
2002 Studio Plan. On April 29, 2003, the Board approved a 3,000,000 share
increase to the total number of shares available for grant under the 2002 Plan.
As of March 31, 2003, there were outstanding options to purchase a total of
approximately 4,551,000 shares under the 1999 Plan; 3,105,000 shares under the
2002 Plan; and 2,182,500 shares under the 2002 Studio Plan.
18
The Company's Board of Directors and Compensation Committee also approved the
issuance of options, outside of any Company option plan set forth above pursuant
to the Company's supplemental option program, to purchase common stock to
certain executives and employees of the Company. As of March 31, 2003, there
were outstanding supplemental program options to purchase up to approximately
5,705,000 shares with a weighted-average exercise price of $4.64. The material
terms of these options were identical to those under the various stock option
plans sponsored by the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: July 29, 2003
ACTIVISION, INC.
By: /s/ George Rose
------------------------
(George Rose)
Senior Vice President,
General Counsel and Secretary
20
CERTIFICATION
I, Robert A. Kotick, Chief Executive Officer of Activision, Inc., certify that:
1. I have reviewed this amendment to the annual report on Form 10-K/A of
Activision, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 29, 2003
/s/ Robert A. Kotick
---------------------------
Robert A. Kotick
Chief Executive Officer
21
CERTIFICATION
I, Ronald Doornink, President of Activision Inc., and Chief Executive Officer of
Activision Publishing, Inc., certify that:
1. I have reviewed this amendment to the annual report on Form 10-K/A of
Activision, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 29, 2003
/s/ Ronald Doornink
---------------------
Ronald Doornink
President, Activision, Inc. and
Chief Executive Officer,
Activision Publishing, Inc.
22
CERTIFICATION
I, William J. Chardavoyne, Executive Vice President and Chief Financial Officer
of Activision, Inc., certify that:
1. I have reviewed this amendment to the annual report on Form 10-K/A of
Activision, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 29, 2003
/s/ William J. Chardavoyne
---------------------------
William J. Chardavoyne
Executive Vice President and
Chief Financial Officer
23