Activision Blizzard (ATVI)

Employment Agreements

        We believe that, to attract and retain the executive talent necessary to lead us, we should enter into an employment agreement with each of our executive officers. The following is a summary of the material terms regarding compensation set forth in the employment agreement we have entered into with each of our named executive officers, other than provisions regarding payments and benefits upon termination or a change of control, which are described under "—Potential Payments upon Termination or Change of Control" below.

Employment Agreements

        We believe that the Company should enter into employment agreements with named executive officers to attract, retain and motivate talented executives. As stated earlier, the Company typically recruits top executive talent from larger organizations with well developed reward programs. Accordingly, attracting, retaining and motivating these talented executives often require a significant financial investment from the Company. Employment agreements provide assurance that the Company will receive the benefits of these executives' services during the defined term, as well as post-employment protections through non-compete, non-solicitation and other protective clauses. The typical employment agreement with a named executive officer:

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has a two-to-five year term (subject, in many cases, to the Company's right to extend the term if the executive receives a stated minimum amount of compensation during the initial term);



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establishes an initial base salary;



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permits participation in a performance-based annual incentive program;



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provides a one-time long-term incentive equity grant; and



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provides certain payments upon termination.

        The Company entered into employment agreements with each named executive officer for fiscal 2008. In December 2007, the Company entered into amended and restated employment agreements with Messrs. Kotick and Kelly and entered into an amendment to Mr. Griffith's employment agreement. At approximately the same time, the Company also entered into replacement bonus agreements with Messrs. Kotick and Kelly. See "—Employment Agreements" above for a description of these agreements.

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         Kotick Employment Agreement.    In June 2007, the Company commenced negotiations for a new employment agreement with Mr. Kotick. The need for a new employment agreement with Mr. Kotick arose because:

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Mr. Kotick's existing employment agreement was scheduled to expire in early 2008;



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amendments to his existing employment agreement were required to comply with Section 409A of the U.S. Internal Revenue Code; and



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Mr. Kotick would be subject to enhanced duties resulting from the Combination.

Due to Mr. Kotick's position, the Compensation Committee determined that it was not advisable to involve other members of management in the negotiations process. As a result, the Compensation Committee directly negotiated the terms of the agreement with Mr. Kotick. In addition to consulting with the Compensation Committee's independent legal advisors, the Compensation Committee engaged Frederic Cook as independent compensation consultants. At the time the agreement was executed, Frederic Cook observed that the Compensation Committee's deliberations were thorough and well informed, that it exercised its judgment in reaching its conclusions, and that the compensation to be paid to Mr. Kotick under the agreement and the manner of its payment were reasonable in the context of competitive practice and related business considerations.

        In structuring the compensation for Mr. Kotick, the Compensation Committee sought to accomplish the following:

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provide for a greater link between pay and performance;



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eliminate or reduce certain costly legacy provisions of Mr. Kotick's prior employment agreement that were not consistent with a performance-oriented pay philosophy, including certain change in control benefits and post-employment compensation; and



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retain Mr. Kotick and address competitive pressure from higher-paying market segments, such as entertainment and private equity, where he could potentially be employed.

        The Compensation Committee reviewed financial analyses prepared by Frederic Cook showing the estimated values of the compensation to be provided to Mr. Kotick pursuant to his agreement at different assumed dates and various assumed levels of Company financial performance during the employment period, upon a termination of employment and upon a change in control of the Company. In addition, the Compensation Committee took into account that the Combination was being considered, the consideration proposed to be paid in connection with the Combination and that by entering into the amended and restated employment agreement Mr. Kotick waived his right to significant amounts that would otherwise have been payable upon the consummation of the Combination pursuant to his existing agreement. As a result, the employment agreement provided for certain benefits, such as performance-based vesting restricted stock, that Mr. Kotick would receive only if the Combination were consummated.

         Griffith Employment Agreement.    In recognition of Mr. Griffith's contributions with respect to the Combination and to provide Mr. Griffith with additional incentives to deliver superior results in connection with the integration of the Company and Vivendi Games, on December 1, 2007, the Company entered into an amendment to Mr. Griffith's employment agreement which became effective upon the consummation of the Combination. See "—Employment Agreements—Michael J. Griffith."

         Replacement Bonus Agreements.    As a result of an investment in the Company by a third party in April 2000, Messrs. Kotick and Kelly were each entitled to receive a change in control payment from the Company. In consideration for the agreement by Messrs. Kotick and Kelly to waive their rights to these payments in 2000, the Company entered into an agreement with each of Messrs. Kotick and Kelly that provided for the automatic reduction in the exercise price of certain stock options held by the

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executive upon a future change in control transaction. In order to avoid potential adverse tax consequences under Section 409A of Internal Revenue Code, on December 29, 2006, the Company amended the employment agreements with each of Messrs. Kotick and Kelly to remove the option repricing provision in such agreements. In lieu of providing a specific replacement benefit at this time, the Company agreed to negotiate with the executives in good faith to promptly develop amendments to their employment agreements to provide benefits reasonably comparable to the removed provisions in a manner that satisfied the requirements of Section 409A.

        In early 2007, the Company commenced discussions with Messrs. Kotick and Kelly to value the benefits forgone pursuant to the December amendment and to formulate a replacement benefit. In the Fall of 2007, the Compensation Committee engaged Frederic Cook as an independent consultant to assist in the valuation of the forgone benefits and a proposed structure for the replacement payment. At this time, the Committee acknowledged that the option repricing provisions would be triggered upon the consummation of the Combination.

        In December 2007, the Company entered into replacement bonus agreements with each of Messrs. Kotick and Kelly. The replacement bonus agreements provided each executive with a $5 million cash payment on December 31, 2007 and a second $5 million payment upon the consummation of the Combination if the executive remained continuously employed through the date of consummation. In addition, each of Messrs Kotick and Kelly were eligible to receive a grant of 363,637 restricted share units upon the consummation of the Combination. The executives and the Company agreed that if the Combination was not consummated prior to June 30, 2009, the executives would have no rights to receive the second cash payment or the grant of restricted share units. Upon execution of the replacement bonus agreements, Messrs. Kotick and Kelly have no further rights with respect to the option repricing provision under their prior employment agreements.

Employment Agreements

        The Compensation Committee believes that to attract and retain the executive talent necessary to lead the Company, the Company must enter into an employment agreement with each of its executive officers. Accordingly, the Company has entered into employment agreements with each of the individuals included in the Summary Compensation Table. Throughout this Proxy Statement, the individuals included in the Summary Compensation Table are referred to as the "named executive officers." The following is a summary of the material terms regarding compensation set forth in employment agreements, other than provisions regarding payments and benefits upon termination or a change in control. A description of the payments and benefits that would be provided to each of the named executive officers in connection with a termination of his or her employment or a change of control of the Company is set forth under "—Potential Payments upon Termination or Change of Control" below.