Activision Blizzard (ATVI)

Impact of Tax and Accounting Considerations

        We consider tax and accounting implications in determining the major elements of our compensation programs and the details of significant individual compensation.

        In structuring compensation programs, setting individual compensation levels and awarding bonuses and incentive plan payouts, the Compensation Committee considers the potential impact of Section 162(m) of the Internal Revenue Code. This section generally does not allow a publicly held corporation to make a tax deduction when compensation paid a covered employee (generally, the chief

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executive officer or any of its three other highest paid officers other than the chief financial officer) exceeds $1.0 million in any taxable year unless:

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the compensation is payable solely on account of the attainment of pre-established objective performance goals;



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a committee of two or more outside directors determines such performance goals;



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our stockholders approve the material terms of the compensation; and



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the committee certifies that the employee has met the performance goals.

        The tax deductibility of compensation paid to other executives is not subject to these limitations.

        The 2007 Plan and the 2008 Plan permit us to structure performance-based incentives to employees who are covered employees in a manner that would allow payments under such plans to satisfy the requirements of Section 162(m) for deductibility.

        For the nine month period ended December 31, 2008, none of our covered employees' salaries exceeded $1.0 million, therefore we may deduct the full amount of each executive's salary. With respect to annual incentive plan and bonus payouts and long-term incentive and equity grants, in light of the circumstances surrounding the Combination, we determined that it was not practical or advisable to take all of the steps necessary in a timely manner to ensure that such compensation was fully deductible under Section 162(m). For 2009, we have taken steps to increase the deductibility of elements of our performance-based incentives and engaged outside counsel to provide legal advice on this matter. However, we believe it is important that we retain the flexibility to structure compensation arrangements necessary to attract and retain the best executive talent, even though such elements may not be fully deductible under Section 162(m).

        To the extent that any award granted under the 2007 Plan or the 2008 Plan constitutes a deferral of compensation within the meaning of Section 409A of the Code, the Compensation Committee intends to cause the award to comply with the requirements of Section 409A and to avoid the imposition of penalty taxes and interest upon the participant receiving the award.

        The Compensation Committee also takes accounting considerations, including the impact of FAS 123(R), into account in structuring compensation programs and determining the form and amount of compensation awarded.