<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ELECTRONIC ARTS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
NOTICE OF 1995 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of Stockholders of
Electronic Arts Inc. (the "Company") will be held at the Company's corporate
headquarters, 1450 Fashion Island Boulevard, San Mateo, California, on Thursday,
August 3, 1995 at 2:00 p.m. for the following purposes:
1. To elect six (6) Directors of the Company to serve until the next
annual meeting of stockholders and until their respective successors have
been elected and qualified or until their earlier resignation or removal.
The Board of Directors intends to nominate the following individuals for
election to the Board: M. Richard Asher, William J. Byron, Daniel H. Case
III, Gary M. Kusin, Timothy Mott and Lawrence F. Probst III.
2. To approve an amendment to the Company's 1991 Stock Option Plan to
increase the number of shares of the Company's common stock reserved for
issuance under such Plan by 1,850,000 shares from a total of 8,050,000
shares to a total of 9,900,000 shares.
3. To approve an amendment to the Company's Employee Stock Purchase
Plan to increase the number of shares of the Company's common stock reserved
for issuance under such Plan by 150,000 shares from a total of 900,000
shares to a total of 1,050,000 shares.
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
5. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on June 6, 1995 are
entitled to notice of and to vote at the Meeting and any adjournment thereof.
By Order of the Board of Directors
Lawrence F. Probst III
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
San Mateo, California
June 27, 1995
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
ELECTRONIC ARTS INC., 1450 FASHION ISLAND BOULEVARD, SAN MATEO, CALIFORNIA 94404
<PAGE>
[LOGO]
------------------------
PROXY STATEMENT
------------------------
JUNE 27, 1995
The accompanying proxy is solicited on behalf of the Board of Directors of
Electronic Arts Inc., a Delaware corporation (the "Company"), for use at the
1995 Annual Meeting of Stockholders of the Company to be held at the Company's
corporate headquarters, 1450 Fashion Island Boulevard, San Mateo, California, on
Thursday, August 3, 1995 at 2:00 p.m. (the "Meeting"). Only stockholders of
record of the Company's common stock at the close of business on June 6, 1995
will be entitled to vote. At the close of business on that date, the Company had
51,064,062 shares of common stock outstanding and entitled to vote. A majority,
or 25,532,302 of these shares, will constitute a quorum for the transaction of
business. This Proxy Statement and the accompanying proxy were first mailed to
stockholders on or about June 27, 1995. An annual report as required by Rule
14a-3 of the rules of the Securities and Exchange Commission (the "SEC") was
mailed to each stockholder concurrently with a copy of this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of common stock are entitled to one vote for each share held as of
the record date indicated above. Shares of common stock may not be voted
cumulatively. Directors will be elected by a plurality of the votes eligible to
vote and voting, either in person or by proxy, at the Meeting. An affirmative
vote of a majority of the shares eligible to vote and voting, either in person
or by proxy, is required for approval of all proposals being submitted to the
stockholders for their consideration. Abstentions and broker non-votes will each
be included in determining the number of shares present and voting at the
Meeting. Abstentions will be counted in tabulations of the votes cast on
proposals, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved.
Any person signing a proxy in the form accompanying this Proxy Statement has
the power to revoke it prior to the Meeting or at the Meeting prior to the vote
pursuant to the proxy. A proxy may be revoked by: (i) a written statement
delivered to the Company stating that the proxy is revoked; (ii) a subsequent
proxy executed by the person executing the prior proxy and presented to the
Meeting; or (iii) attendance at the Meeting and voting in person.
The expenses of soliciting proxies in the enclosed form will be paid by the
Company. Following the original mailing of the proxies and other soliciting
materials, the Company and/or its agents may also solicit proxies by mail,
telephone, telegraph, facsimile or in person. The Company has retained a proxy
solicitation firm, Skinner & Co., to aid it in the solicitation process. The
Company will pay a fee of $3,500 to such firm, plus hourly fees and expenses,
with total costs anticipated to be approximately $7,500. Following the original
mailing of the proxies and other soliciting materials, the Company will request
brokers, custodians, nominees and other record holders of the Company's common
stock to forward copies of the proxy and other soliciting materials to persons
for whom they hold shares of common stock and to request authority for the
exercise of proxies. In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable expenses.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Meeting, stockholders will elect Directors to hold office until the
next annual meeting of stockholders and until their respective successors have
been elected and qualified or until their earlier resignation or removal. The
Company's Board currently has six (6) members. Shares represented by the
accompanying proxy will be voted for the election of the six (6) nominees
recommended by the Company's management unless the Proxy is marked in such a
manner as to withhold authority to so vote. If any nominee for any reason is
unable to serve or for good cause will not serve, the proxies may be voted for
such substitute nominee as the proxy holder may determine. The Company is not
aware of any nominee who will be unable to, or for good cause will not, serve as
a Director. Each of the Company's nominees, except Mr. Kusin, is currently a
Director of the Company.
<PAGE>
DIRECTORS/NOMINEES
The names of the nominees, and certain information about them (including
their terms of service), are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------- --- ------------------------------------------ ---------
<S> <C> <C> <C>
M. Richard Asher (1)(2)(3) 63 Consultant 1984
William J. Byron (2) 62 Self-employed 1989
Daniel H. Case III (2) 38 President and Chief Executive Officer, 1993
Hambrecht & Quist Group and Hambrecht &
Quist LLC
Gary M. Kusin 44 Chairman, Kusin Gurwitch Cosmetics, LLC --
Timothy Mott (1)(3) 46 Partner, Ironwood Capital and Chairman, 1990
Macromedia, Inc.
Lawrence F. Probst III 45 Chairman, President and Chief Executive 1991
Officer of the Company
<FN>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
</TABLE>
MR. ASHER has been a Director of the Company since September 1984. He is
presently a consultant. Mr. Asher served as President and Chief Executive
Officer of Polygram Records, Inc., a publisher and distributor of recorded
music, from October 1985 through December 1989. Since January, 1995, Mr. Asher
has served as a member of the Board of Directors of AVI Entertainment Group,
Inc., a company that creates and sells prerecorded records and tapes. Mr. Asher
was, until December of 1994, a member of the Board of Directors of The 3DO
Company, a company which is developing and marketing technology for multimedia
markets. See "Compensation of Directors" and "Certain Transactions" below. The
Company is a significant minority stockholder of The 3DO Company.
MR. BYRON has been a Director of the Company since January 1989. From 1981
to 1992, he was the owner and President of CMA Sales, a sales and marketing
consulting firm. In addition, from July 1985 through July 1988, he was President
of Sanyo Electric, Inc.'s consumer electronics division. Mr. Byron is currently
self-employed.
MR. CASE has been a Director of the Company since November 1993. He is
currently President and Chief Executive Officer of Hambrecht & Quist Group and
Hambrecht & Quist LLC, an investment banking and venture capital firm. Mr. Case
joined Hambrecht & Quist in 1981 and has held positions in management, corporate
finance, merger and acquisitions and venture capital.
MR. KUSIN has not previously been a Director of the Company. He has been the
Chairman of Kusin Gurwitch Cosmetics, LLC, since March 1995. From 1983 through
February of 1995, Mr. Kusin was the President of Babbages, Inc. Mr. Kusin
currently serves on the Board of Directors of County Seat Stores, Inc. and is
Chairman of its compensation committee.
MR. MOTT has been a Director of the Company since September 1990. He is
currently a partner of Ironwood Capital, and the Chairman of the Board of
Directors of Macromedia, Inc., a multimedia company. Mr. Mott is also a Director
of Edmark Corporation, an educational software company. Mr. Mott was a
co-founder of the Company and was employed by the Company from 1982 to 1990 in a
variety of capacities, including Senior Vice President of Business Development
and Managing Director of Electronic Arts (UK) Limited.
MR. PROBST has been a Director of the Company since January 1991. Mr. Probst
has served as Chairman since July, 1994, President since December 1990 and has
served as President and Chief Executive Officer since May 1991. He served as
Senior Vice President of EA Distribution from January 1987 to January 1991.
MR. ROBERT S. COHN, currently Chairman and Chief Executive Officer of Octel
Communications Corp., has decided not to stand for re-election due to time
constraints.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR.
2
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Standing committees of the Board are the Audit Committee, the Compensation
Committee and the Nominating Committee.
Mr. Asher and Mr. Mott are currently the members of the Audit Committee. The
Audit Committee meets with the Company's independent accountants to review the
adequacy of the Company's internal control systems and financial reporting
procedures, to review the general scope of the Company's annual audit and the
fees charged by the independent accountants and to review and monitor the
performance of non-audit services by the Company's auditors.
Messrs. Asher, Byron, Case and Cohn are currently the members of the
Compensation Committee. The Compensation Committee administers the Company's
1991 Stock Option Plan, the Company's Employee Stock Purchase Plan, the
Company's Directors' Stock Option Plan and other employee options as well as
salaries and other compensation for officers and employees. See "Compensation
Committee Report on Executive Compensation" below.
Messrs. Asher, Cohn and Mott are currently the members of the Nominating
Committee. The Nominating Committee recommends candidates to fill vacancies on
the Board and a slate of Directors for election at the Annual Meeting, evaluates
the size and composition of the Board and establishes criteria for selection of
Directors. Stockholders who wish to recommend individuals to the Nominating
Committee for consideration for future Board position openings may send their
written recommendations to the Nominating Committee of the Board at the
Company's headquarters, Attention: General Counsel.
During the Company's 1995 fiscal year, the Board of Directors met five
times, the Compensation Committee met five times, the Audit Committee met twice
and the Nominating Committee met once. In fiscal 1995, no incumbent Director
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors (held during the period for which he has been a Director) and
of the committees of the Board on which he served (held during the period that
he served).
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 20, 1995, 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 Director and nominee; (iii) each executive
officer named in the Summary Compensation Table below; and (iv) all executive
officers and Directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OF CLASS
- -------------------------------------------- ----------------------- ------------
<S> <C> <C>
FMR Corporation (2) 6,066,100 11.9%
82 Devenshire Street
Boston, Massachusetts 02109
The Capital Group Companies, Inc. (3) 5,596,610 11.0%
333 South Hope Street
Los Angeles, California 90071
Massachusetts Financial Services 3,238,875 6.3%
Company (4) ("MFS")
500 Boylston Street
Boston, Massachusetts 02116
W. M. (Trip) Hawkins III (5) 2,552,880 5.0%
600 Galveston Drive
Redwood City, California 94063
Lawrence F. Probst III (6) 530,812 1.0%
William B. Gordon (7) 332,927 *
E. Stanton McKee, Jr. (8) 283,329 *
Timothy Mott (9) 282,464 *
Mark Lewis (10) 241,212 *
Nancy L. Smith (11) 170,230 *
M. Richard Asher (12) 142,680 *
William J. Byron (13) 46,427 *
Robert S. Cohn (14) 28,156 *
Daniel H. Case III (15) 11,460 *
Gary M. Kusin 0 0
All executive officers and Directors 2,582,831 5.1%
as a group (17 persons) (16)
<FN>
- ------------------------
*Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) The number of shares shown to be beneficially owned by FMR Corp. is based
on a confirmation from FMR dated May 25, 1995 and its Schedule 13G dated
April 30, 1995.
(3) Beneficial ownership is disclaimed pursuant to Rule 13d-4. CAPITAL GUARDIAN
TRUST COMPANY and CAPITAL RESEARCH AND MANAGEMENT COMPANY, operating
subsidiaries of THE CAPITAL GROUP COMPANIES, INC., exercise investment
discretion with respect to a combined total of 11.0% of outstanding stock
which is owned by various institutional investors. The number of shares
shown has been confirmed by The Capital Group Companies on May 24, 1995.
(4) The number of shares shown is as of May 12, 1995 and has been confirmed by
MFS on May 24, 1995.
(5) The number of shares shown has been confirmed by Mr. Hawkins on May 24,
1995.
(6) Represents 51,812 shares held by Mr. Probst, and 479,000 shares subject to
options exercisable within 60 days.
(7) Represents 47,527 shares held by Mr. Gordon, and 285,400 shares subject to
options exercisable within 60 days.
(8) Represents 167,729 shares held by Mr. McKee, and 115,600 shares subject to
options exercisable within 60 days.
(9) Represents 270,164 shares held by Mr. Mott, and 12,300 shares subject to
options exercisable within 60 days.
(10) Represents 31,012 shares held by Mr. Lewis, and 210,200 shares subject to
options exercisable within 60 days.
(11) Represents 30,770 shares held by Ms. Smith, and 139,460 shares subject to
options exercisable within 60 days.
(12) Represents 120,399 shares held by Mr. Asher, and 22,281 shares subject to
options exercisable within 60 days.
(13) Represents 26,664 shares held by Mr. Byron, and 19,763 shares subject to
options exercisable within 60 days.
(14) Represents 28,156 shares subject to options exercisable within 60 days
granted to Mr. Cohn.
(15) Represents 11,460 shares subject to options exercisable within 60 days
granted to Mr. Case.
(16) Includes 1,801,810 shares subject to options exercisable within 60 days
(including the options described in notes (6) through (15 above).
</TABLE>
4
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the Company's cumulative total stockholder return
on its common stock in the period from April 1, 1990, through March 31, 1995,
with the total cumulative return of the NASDAQ Market Index and Hambrecht &
Quist High Technology Index over the same period.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ELECTRONIC ARTS NASDAQ H&Q HIGH TECHNOLOGY
<S> <C> <C> <C>
3/90 $100.0 $100.0 $100.0
6/90 $197.1 $106.6 $108.6
9/90 $98.5 $80.1 $78.5
12/90 $110.3 $87.9 $88.6
3/91 $222.1 $114.2 $114.9
6/91 $201.5 $112.9 $109.2
9/91 $297.1 $126.0 $113.8
12/91 $450.0 $141.1 $130.9
3/92 $558.8 $145.6 $135.3
6/92 $558.8 $135.6 $124.1
9/92 $729.4 $141.1 $129.4
12/92 $970.6 $164.2 $150.6
3/93 $1376.5 $167.3 $148.4
6/93 $1423.5 $170.5 $151.6
9/93 $1611.8 $184.8 $154.3
12/93 $1411.8 $188.5 $164.4
3/94 $1235.3 $180.6 $165.8
6/94 $658.8 $172.2 $153.8
9/94 $870.6 $186.5 $175.5
12/94 $905.9 $184.3 $190.8
3/95 $1064.7 $201.3 $212.3
</TABLE>
5
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
COMPENSATION OF DIRECTORS
Currently non-employee Directors receive an annual retainer of $10,000, and
a fee of $1,000 and $750 per meeting and telephone meeting attended,
respectively. Committee members receive a fee of $750 and $500 per Committee
meeting and telephone meeting attended, respectively. In addition, the sum of
$1,000 per day may also be paid with the approval of the Board of Directors to
individual Directors for special assignments. In addition, each non-employee
Director also participates in the Directors' Stock Option Plan. Under the
Directors' Stock Option Plan (i) upon initial election or appointment to the
Board of Directors, each non-employee Director is granted an option to purchase
40,000 shares, or such lesser number of shares as is determined by dividing
$800,000 by the closing price of the Company's common stock on the date of
election or appointment, rounded to the nearest 1,000 shares and (ii) upon
re-election to the Board of Directors, each non-employee Director receives an
option to purchase 10,000 shares, or such lesser number as determined by
dividing $200,000 by the closing price of the Company's common stock on the date
of re-election rounded to the nearest 100 shares; however, any director who
received his initial grant after the last annual meeting of stockholders
receives a prorated annual grant to purchase a number of shares determined as
described above, pro-rated for the portion of the year during which he was a
director. Directors' compensation has not been increased since the 1993 annual
meeting and is based on a survey of 25 technology companies with annual revenues
between $200 million and $500 million.
At the last annual meeting, each non-employee director, except Mr. Case,
received 10,000 options at an exercise price of $14.00. Mr. Case, also a
non-employee director, received 7,500 options at an exercise price of $14.00
which is the prorated amount allowed under the Plan. These options were granted
in connection with the Directors re-election to the Board. Such options vest in
equal monthly installments over fifty months from the grant date.
Mr. Asher served as a member of the Board of Directors of The 3DO Company
("3DO") at the request of the Company until December 1994. In consideration of
such service, the Company granted an option to Mr. Asher to purchase 25,000
shares of 3DO preferred stock owned by the Company, for $1.05 per share. Upon
the initial public offering of 3DO, effective May 3, 1993, such option to
purchase preferred stock was automatically converted to an option to purchase
common stock of 3DO. Such option vested over five years as long as Mr. Asher
continued to be a member of the Board of Directors of both 3DO and the Company.
In December, 1994, Mr. Asher's unvested options terminated and his vested
options were exercised in March 1995.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other highest paid executive officers of the Company
whose salary and bonus in fiscal 1995 exceeded $100,000. This information
includes the dollar values of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred. The Company does not grant SARs and has no long term compensation
benefits other than options.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
--------------------------------------------- SECURITIES
SALARY OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) (1) BONUS ($)(2) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ---------------------------------- --------- ------------ ------------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 1995 $ 424,123 $ 168,191 -- 100,000 $ 621(3)
Chairman, President and 1994 353,942 156,736 -- 50,000 5,554
Chief Executive Officer 1993 283,385 289,570 -- 80,000 5,468
William B. Gordon 1995 272,115 95,525 -- 60,000 621(3)
Executive Vice President, 1994 237,365 82,386 -- 30,000 5,495
Entertainment Productions 1993 198,077 143,299 -- 60,000 4,757
E. Stanton McKee, Jr. 1995 258,077 96,465 -- 60,000 621(3)
Senior Vice President, 1994 218,077 74,685 -- 50,000 5,140
Chief Financial and 1993 188,515 136,679 -- 70,000 4,526
Administrative Officer
Mark Lewis 1995 232,207 76,124 75,130(4) 50,000 329(3)
Senior Vice President, 1994 165,673 82,442 16,781(4) 20,000 --
International 1993 168,785 105,272 10,305(4) 40,000 --
Nancy L. Smith 1995 220,192 80,829 -- 45,000 48,109(5)
Senior Vice President, 1994 192,269 66,471 2,500(6) 20,000 4,526
Sales 1993 169,462 122,460 6,000(6) 40,000 4,070
<FN>
- ------------------------------
(1) Includes deferrals for Section 125 Plan and Section 401(k) Plan.
(2) Represents bonuses earned during the fiscal year.
(3) Represents Company paid term life insurance premiums for the benefit of
executive officers.
(4) Represents tax equalization payment from Electronic Arts (UK) Ltd.
(5) Represents $47,527 relocation expenses incurred in 1992 and reimbursed in
fiscal year 95 and $582 Company paid term life insurance premiums.
(6) Represents car allowance.
</TABLE>
STOCK OPTIONS
The following table sets forth information regarding individual grants of
options to purchase the Company's common stock during the Company's 1995 fiscal
year to each of the executive officers named in the Summary Compensation Table
above. All such grants were made pursuant to the Company's 1991 Stock Option
Plan. 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 FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (3)
OPTIONS TO EMPLOYEES PRICE PER EXPIRATION ------------------------
GRANTED (#) IN FY1995 (1) SHARE DATE 5% 10%
----------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III......................... 100,000 3.2 % $ 13.50(2) 7/21/04 $ 849,008 $ 2,151,552
William B. Gordon.............................. 60,000 1.9 13.50(2) 7/21/04 509,405 1,290,931
E. Stanton McKee, Jr........................... 60,000 1.9 13.50(2) 7/21/04 509,405 1,290,931
Mark Lewis..................................... 50,000 1.6 13.50(2) 7/21/04 424,504 1,075,776
Nancy L. Smith................................. 45,000 1.4 13.50(2) 7/21/04 382,053 968,199
<FN>
- ------------------------
(1) The Company granted 3,126,431 options to employees in fiscal 1995. 976,491
of those options were granted as part of a repricing in May, 1994 to
non-executive employees; an equal number were cancelled as part of the
repricing. No grants to executive officers were repriced.
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
7
<PAGE>
<TABLE>
<S> <C>
(2) Stock options were granted at an exercise price equal to the closing price
of the Company's common stock on July 21, 1994 on the Nasdaq National
Market. The options become exercisable as to 6% on September 1, 1994 and
thereafter at a rate of 2% per month for the next 47 months. These options
will be fully vested in August 1998. The options will expire on the earlier
of the tenth anniversary of the date of grant or three months following the
termination of the optionees employment with the Company.
(3) Based on 47,818,174 shares of the Company's common stock outstanding as of
July 21, 1994 and a closing price of common stock that day of $13.50, the
gain for all stockholders, assuming a ten year term, would be as follows:
</TABLE>
<TABLE>
<CAPTION>
5% STOCK PRICE 10% STOCK PRICE
APPRECIATION APPRECIATION
- ------------------------- --------------------------
<S> <C>
$405,980,001 $1,028,833,033
</TABLE>
The following table sets forth certain information concerning the exercise
of stock options during fiscal 1995 by each of the executive officers named in
the Summary Compensation Table above and the number and value at March 25, 1995
of unexercised options held by said individuals.
1995 AGGREGATED OPTION EXERCISES AND MARCH 25, 1995 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
OPTIONS AT MARCH 25, 1995 AT MARCH 26,
(#) 1995 (2)
NUMBER OF SHARES VALUE (1) -------------------------- ------------
ACQUIRED ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
--------------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Lawrence F. Probst III................... 0 $ 0 444,600 185,400 $ 8,178,050
William B. Gordon........................ 0 0 260,600 121,400 4,643,200
E. Stanton McKee, Jr..................... 0 0 101,200 118,800 1,234,275
Mark Lewis............................... 0 0 193,400 88,600 3,501,025
Nancy L. Smith........................... 0 0 123,060 84,500 2,064,642
<CAPTION>
UNEXERCISABLE
-------------
<S> <C>
Lawrence F. Probst III................... $ 1,549,450
William B. Gordon........................ 1,058,800
E. Stanton McKee, Jr..................... 874,475
Mark Lewis............................... 774,725
Nancy L. Smith........................... 735,263
<FN>
- ------------------------
(1) Market value on the date of exercise, less option exercise price.
(2) Based on the fair market value of the Company's common stock at the close
of business on March 25, 1995 ($23.125) less the exercise price of the
options.
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
The Company presently has no employment contracts in effect for the
executive officers, and no severance arrangements exist with respect to their
resignation or termination of employment, whether or not in connection with a
change in control or ownership of the Company. However, outstanding options
under the 1991 Stock Option Plan, including those held by the executive
officers, may immediately vest in connection with certain changes in control or
ownership of the Company, unless the successor company assumes or replaces those
options.
The following Compensation Committee Report on Executive Compensation 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.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee is currently composed of four independent
non-employee Directors who have no interlocking relationships as defined by the
SEC. See "Board of Directors Meetings and Committees" above. The current members
of the Committee are Messrs. Asher, Byron, Case and Cohn.
COMPENSATION COMMITTEE POLICY
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee reviews base salary levels and target bonuses for
the Chief Executive Officer ("CEO") and other executive officers of the Company.
The Committee establishes the general compensation policy of the Company for all
executive officers of the Company. The Committee also administers the Company's
equity incentive plans, including the 1991 Stock Option Plan (the "1991 Plan")
and the Bonus plan for Executive Officers (the "Bonus Plan").
The Committee believes that the compensation of the CEO and the Company's
other executive officers should be significantly influenced by the Company's
performance. Accordingly, the practice of the Company has been to establish
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<PAGE>
base salaries at the approximate median of comparable positions and to designate
an additional portion of the compensation of each executive as contingent upon
corporate performance taking into account the comparable data discussed below.
The Company's Human Resources Department, working with an independent
outside consulting firm, has developed executive compensation data from a
nationally recognized survey for a group of similar size high technology
companies and has provided this data to the Committee. The factors used to
determine the participants in the survey included annual revenue, industry,
growth rate and geography. The Company's executive level positions, including
the CEO, were matched to comparable survey positions and competitive market
compensation levels to determine base salary, target incentives and target total
cash compensation. Practices of such companies with respect to stock option
grants were also reviewed and compared.
In preparing the performance graph for this Proxy Statement (see page 5),
the Company used the Hambrecht & Quist High Technology Index ("H & Q Index") as
its published line of business index. The companies in the Company's
compensation survey are substantially similar to the companies contained in the
H & Q Index. Approximately two thirds of the companies included in the survey
group are included in the H & Q Index. The remaining companies included in the
survey group were felt to be relevant by the Company's independent compensation
consultants because they compete for executive talent with the Company
notwithstanding that they are not included in the H & Q Index. In addition,
certain companies in the H & Q Index were excluded from the survey group because
they were determined not to be competitive with the Company for executive
talent, or because compensation information was not available.
This competitive market data is reviewed with the CEO for each executive
level position and with the Compensation Committee for the CEO. In addition,
each executive officer's performance for the last fiscal year and objectives for
the subsequent year are viewed, together with the executive's responsibility
level and the Company's fiscal performance versus objectives and potential
performance targets for the subsequent year.
FISCAL YEAR 1995 EXECUTIVE COMPENSATION
The foregoing information, along with the CEO's recommendation of base
salary and target bonus for fiscal 1995 for each executive officer was presented
to the Committee in November 1994. The Committee reviewed the recommendation and
performance and market data outlined above and established a base salary level
to be effective October 1, 1994 for each executive officer and the CEO.
In establishing the base salary levels for each executive officer, the
Committee considered the following factors: the qualifications of the executive
officer and the relevant individual experience he or she brings to the Company,
strategic goals for which the executive officer has responsibility, and the
compensation levels at other companies within the industry which compete with
the Company for executive talent. For the 1995 fiscal year, the base salary of
the Company's executive officers ranged from 88 to 121 percent of the average
base salary levels in effect for comparable positions with the survey companies.
The Bonus Plan was established by the Committee in July 1994. The Committee
assigned a target bonus to each executive officer (expressed as a percentage of
the executive officer's base salary), approved Company performance objectives to
be used for bonus determination and approved the overall structure and mechanics
of the Bonus Plan. Bonuses are paid in six parts, five of which relate only to
the Company's earnings results: one part measured against the Company's earnings
in each fiscal quarter for a total of four parts, and one part measured against
the Company's earnings for the fiscal year. The sixth part is measured against
each individual executive's contributions. Bonuses are paid quarterly for the
prior quarter, and after the end of the fiscal year for those portions based on
fiscal year performance and individual contributions. Provided that threshold
Company earnings levels are achieved, individual bonuses are adjusted on the
basis of the percentage relationship of actual to targeted earnings. The bonuses
were targeted at approximately the 50th percentile of the prevailing salaries in
the survey companies. No bonuses were paid for the first or fourth fiscal
quarters because the Company did not meet its threshold fiscal quarter earnings
results in accordance with the Bonus Plan.
In July 1994, the Committee made stock option grants to certain executive
officers including the CEO. See "Option Grants in Fiscal 1995" above. Stock
options typically have been granted to executive officers when the executive
first joins the Company, in connection with a significant change in
responsibilities, to provide continuing incentives for continued employment and,
occasionally, to achieve equity within a peer group.
Stock option grants were made by the Committee, in the context of the
Company's planned fiscal 1995 performance. The number of shares subject to each
stock option granted to an executive officer takes into account or is based on
anticipated future contribution and ability to impact corporate and/or business
unit results, past performance or consistency within the executive's peer group,
the responsibility level and performance of the executive officer, prior
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<PAGE>
option grants to the executive officer and the level of vested and unvested
options. The purpose of these options was to provide greater incentives to those
officers to continue their employment with the Company and to strive to increase
the value of the Company's common stock. All grants were made at fair market
value on the date of grant and vest from July 1994 over a 50 month period.
FISCAL YEAR 1995 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
In November 1994, the Committee adjusted the base salary for Mr. Probst by
approving a 20% increase to the level of base salary in effect for him for the
1994 fiscal year. The base salary as so adjusted equals ninety-nine percent
(99%) of the average salary in effect for chief executive officers at the same
companies surveyed for comparative compensation purposes for all other executive
officers of the Company. The Committee also established a target bonus for Mr.
Probst under the Bonus Plan for fiscal 1995 which was based upon the market
compensation data discussed above. Mr. Probst's bonus is measured and paid in
accordance with the Bonus Plan described above but is based solely on the
Company's quarterly and fiscal year earnings.
In July 1994, the Committee also made a new stock option grant to Mr. Probst
for 100,000 shares based upon the retention and incentive factors discussed
above, taking into account prior option grant history, the level of vested
versus unvested shares and the number of shares Mr. Probst already owned as of
July 1994. The grant reflects the Committee's continuing policy to subject a
portion of his overall compensation each year to the market performance of the
Company's common stock and to maintain his option holdings at a level consistent
with that for other chief executive officers at the survey companies in the
industry.
COMPLIANCE WITH SECTION 162(m) of the Internal Revenue Code of 1986
Recently enacted Section 162(m) of the Code limits deductions for certain
executive compensation in excess of $1 million. Certain types of compensation
are deductible only if performance criteria are specified in detail and are
contingent on stockholder approval of the compensation arrangement. The Company
has endeavored to structure its compensation plans to achieve maximum
deductibility under Section 162(m) with minimal sacrifices of inflexibility and
corporate objectives.
With respect to its equity compensation arrangements, the Committee has
structured its stock option arrangements in a manner intended to ensure the tax
deductibility of such amounts. With respect to non-equity compensation
arrangements, the Committee has reviewed the terms of those arrangements most
likely to be subject to Section 162(m). The Committee believes that the Company
can claim full deductibility of amounts paid under existing executive
compensation arrangements. While the Committee will consider deductibility under
Section 162(m) with respect to future compensation arrangements with executive
officers, deductibility will not be the sole factor used in ascertaining
appropriate levels or modes of compensation. Since corporate objectives may not
always be consistent with the requirements for full deductibility, it is
conceivable that the Company may enter into compensation arrangements in the
future under which payments are not deductible under Section 162(m).
No member of the Compensation Committee was at any time during the 1995
fiscal year an officer or employee of the Company or its subsidiary. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION COMMITTEE
M. Richard Asher
William J. Byron
Daniel H. Case III
Robert S. Cohn
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT TO
1991 STOCK OPTION PLAN
At the Meeting, stockholders will be asked to approve the amendment of the
Company's 1991 Stock Option Plan (the "1991 Plan") to increase the number of
shares of the Company's common stock reserved for issuance under the 1991 Plan
by 1,850,000 shares from a total of 8,050,000 shares to a total of 9,900,000
shares. The 1991 Plan is described in detail in "Stock Option Plan" below. Since
each executive officer of the Company is eligible to receive options under the
1991 Plan, each such officer has a personal interest in this proposed amendment
to the 1991 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
1991 PLAN.
10
<PAGE>
PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO
EMPLOYEE STOCK PURCHASE PLAN
At the Meeting, stockholders will be asked to approve the amendment of the
Company's Employee Stock Purchase Plan (the "Purchase Plan") to increase the
number of shares of the Company's common stock reserved for issuance under the
Purchase Plan by 150,000 shares from a total of 900,000 shares to a total of
1,050,000 shares. The Purchase Plan is described in detail in "Employee Stock
Purchase Plan" below. Since each executive officer of the Company is eligible to
participate in the Purchase Plan, each such officer has a personal interest in
this proposed amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
PURCHASE PLAN.
STOCK OPTION PLAN
HISTORY. The 1991 Plan was adopted by the Board on April 25, 1991 and
approved by the Company's stockholders on July 25, 1991. On September 4, 1992,
the Board approved an Addendum to the 1991 Plan (the "Addendum") applicable to
grants of options under the 1991 Plan to employees of the Company or its United
Kingdom subsidiary who are residents of the United Kingdom. The terms of all
options granted pursuant to the Addendum are similar in all material respects to
nonqualified options granted under the 1991 Plan except as described herein or
as necessary or appropriate to comply with applicable United Kingdom laws. All
numbers of shares and exercise prices have been adjusted to reflect a one share
for one share stock dividend effected in March 1992 and a one share for one
share stock dividend effected in February 1993.
Set forth below is a summary of the principal features of the 1991 Plan,
which summary is qualified in its entirety by reference to the terms and
conditions of the 1991 Plan. In addition, the Company will provide, without
charge, to each person to whom a proxy statement is delivered, upon request of
such person and sent first class mail within one business day of receipt of such
request, a copy of the 1991 Plan. Any such request should be directed as
follows: Stock Administration Department, Electronic Arts Inc., 1450 Fashion
Island Boulevard, San Mateo, California 94404; telephone number (415) 571-7171.
RECENT AMENDMENTS. The 1991 Plan has been amended four times since its
adoption (July 1992, November 1992, July 1993, and July 1994), primarily to
increase the number of shares available for issuance thereunder and to update
the 1991 Plan to reflect changes in relevant tax and corporate laws.
PURPOSE. The purpose of the 1991 Plan is to provide equity incentives to
assist the Company in recruiting and retaining qualified officers, employees,
Directors who are employees of the Company, independent contractors,
consultants, authors and advisors by granting to such persons options to
purchase shares of the Company's common stock.
ADMINISTRATION. The 1991 Plan provides that it may be administered by the
Board or a committee of the Board appointed by the Board. In order to comply
with certain rules of the SEC applicable to the Company, it is the Company's
practice to have the 1991 Plan administered by the Board only if a majority of
the Directors are not (and have not recently been) eligible to participate in
the 1991 Plan. At such time as the Company elects to be covered by the new rules
issued by the SEC under Section 16 of the Securities Exchange Act of 1934, as
amended, the disinterested Committee must thereafter consist of not less than
two Directors who must not have participated in any discretionary stock plan of
the Company within the prior year and who are "outside Directors" within the
meaning of Section 162(m) of the Code.
Currently, the 1991 Plan is administered by the Compensation Committee, a
majority of who are not (and have not recently been) eligible to participate in
the 1991 Plan. Other than as disclosed herein, members of the Committee have no
material relationships with the Company, its employees or its affiliates.
Subject to the terms of the 1991 Plan, the Committee determines the optionees,
the number of shares subject to each option, the exercise prices, the exercise
periods and the dates of grants. The Committee also has the authority to
construe and interpret any of the provisions of the 1991 Plan or any options
granted thereunder. Such interpretations are binding on the Company and on the
optionees.
The members of the Compensation Committee received no compensation for
administering the 1991 Plan other than their compensation for attending Board
and Committee meetings and for sitting on a Committee. The Company bears all
expenses in connection with administration of the 1991 Plan and has agreed to
indemnify members of the Committee in connection with their administration of
the 1991 Plan.
11
<PAGE>
The Compensation Committee currently consists of M. Richard Asher, William
J. Byron, Daniel H. Case III and Robert S. Cohn, each of whom is an outside
Director of the Company. Messrs. Asher, Byron, Case and Cohn are also
stockholders and/or option holders. None of the Committee members is eligible to
participate in the 1991 Plan. Other than as disclosed herein, members of the
Committee, who must be members of the Board, are chosen by the Board and serve
at its discretion. The members of the Board are elected each year at the
Company's Annual Meeting of Stockholders and serve until the next Annual Meeting
or until their successors are elected and qualified or until their earlier
resignation or removal. The stockholders may remove members of the Board from
office by following certain voting procedures set forth in the Company's by-laws
and applicable corporate law.
ELIGIBILITY. All officers, employees, independent contractors, consultants
and advisors of the Company or any parent, subsidiary, or affiliate of the
Company are eligible to receive option grants under the 1991 Plan. Option grants
under the 1991 Plan to employees of Electronic Arts, Limited, and Bullfrog
Productions Ltd. who reside in the United Kingdom are made pursuant to the
Addendum, which places a limit on the aggregate exercise price of options
granted to any optionee. At the last reported headcount on June 1, 1995,
approximately 1,113 employees were eligible to receive options under the 1991
Plan. No optionee is eligible to receive more than an aggregate maximum of
1,000,000 shares at any time from July 27, 1994 through the end of the term of
the 1991 Plan.
An optionee may hold more than one option granted under the 1991 Plan. Both
incentive stock options ("ISO"), as defined in Section 422 of the Code and
nonqualified stock options ("NQSO") may be granted under the 1991 Plan. The 1991
Plan limits the aggregate fair market value (determined as of the time the
option is granted) of the shares with respect to which ISOs are exercisable for
the first time by the optionee during any calendar year to not more than
$100,000. There is no similar limit on NQSOs granted under the 1991 Plan.
TERMS OF THE OPTIONS AND THE 1991 PLAN. Options may be granted under the
1991 Plan until April 25, 2001. Subject to the provisions of the 1991 Plan, the
Committee may determine the vesting schedule of each option and other terms and
conditions of exercisability under the 1991 Plan.
Options granted under the 1991 Plan must be exercised within ten years of
the option grant date, except that an ISO granted to a person owning ten percent
or more of the total combined voting power of all classes of stock of the
Company or of any parent or subsidiary of the Company (a "Ten Percent
Stockholder") and an ISO granted under the Addendum must be exercised within
five years of the option grant date.
The Committee determines the exercise price of each option granted under the
1991 Plan. The exercise price must be at least equal to the fair market value
per share of the Company's common stock on the date the option is granted,
except that the exercise price of an ISO granted to a Ten Percent Stockholder
must be at least equal to 110% of the fair market value per share on the date of
grant. On June 1, 1995, the fair market value of the Company's common stock (as
determined by the closing price on the Nasdaq National Market on such date) was
$27.00.
To exercise an option, the optionee must deliver to the Company an executed
exercise notice and full payment for the shares being purchased. Shares
purchased under the Addendum must be paid for in cash. With respect to all other
options under the 1991 Plan as currently in effect, payment may be made in cash
or by other specified forms of payment.
TERMINATION OF OPTIONS. Under the 1991 Plan, if an optionee's association
with the Company is terminated for any reason other than death or disability,
any outstanding option, to the extent (and only to the extent) that it was
exercisable on the date of such termination, may be exercised by the optionee
within three (3) months after such termination (or such shorter time as may be
specified in the grant evidencing the option), but in no event later than the
expiration of the option. A longer exercise period may apply in the event of
termination of an optionee's association with the Company because of the
optionee's death or disability.
CHANGES IN CAPITAL STRUCTURE. If the Company issues additional securities
to raise capital or otherwise where consideration is received for the shares, no
adjustment is required in the number of shares or the exercise price per share
for outstanding options under the 1991 Plan. If the number of outstanding shares
of common stock of the Company is changed by a stock dividend, stock split,
reverse stock split, combination, reclassification or similar change in the
capital structure of the Company without consideration or if there is a
distribution of a substantial portion of the Company's assets in a spin-off or
similar transaction, the number of shares of common stock available for option
grants under the 1991 Plan and the number of shares and the exercise price per
share for each outstanding option will be proportionately adjusted, subject to
any required action by the Board or stockholders of the Company. Effective both
March 26, 1992 and February 22, 1993, a stock dividend was paid in the form of
one additional share for each outstanding share. Accordingly, the number of
outstanding options and the exercise price payable per share, as well as the
number of shares available for issuance under the 1991 Plan as of March 26, 1992
and February 22, 1993, was adjusted to reflect the dividends.
12
<PAGE>
ASSUMPTION OF OPTIONS AND ACCELERATION OF VESTING. Under the 1991 Plan, in
the event of (i) a dissolution or liquidation of the Company, (ii) a merger in
which the Company is not the surviving corporation (with certain exceptions),
(iii) the sale of all or substantially all of the assets of the Company, or (iv)
a "corporate transaction" under Section 424(a) of the Code where stockholders
give up all of their equity in the Company (except for an acquisition of all or
substantially all of the outstanding shares of the Company), the vesting of all
options will accelerate and the options will become exercisable in full prior to
the consummation of such event, at such times and on such conditions as the
Committee determines, unless the successor corporation assumes the outstanding
options or substitutes substantially equivalent options. The aggregate fair
market value (determined at the time an option is granted) of stock with respect
to which ISOs first become exercisable in the year of any such dissolution,
liquidation, merger or sale of assets cannot exceed $100,000. Any remaining
accelerated ISOs will be treated as NQSOs.
TAX TREATMENT OF THE OPTIONEE
ISOs. The optionee will recognize no income upon the grant of an ISO and
incur no tax on its exercise. If the optionee holds the stock acquired upon
exercise of an ISO (the "ISO Shares") for more than one year after the date the
option was exercised and for more than two years after the date the option was
granted, the optionee generally will realize long-term capital gain or loss
(rather than ordinary income or loss) upon disposition of the ISO Shares. This
gain or loss will be equal to the difference between the amount realized upon
such disposition and the amount paid for the shares.
If the optionee disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the
shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain, depending upon
the length of time the ISO Shares were held by the optionee.
NQSOs The optionee will not recognize any taxable income at the time a NQSO
is granted. However, upon exercise of a NQSO, the optionee will include in
income as compensation an amount equal to the difference between the fair market
value of the shares on the date of exercise and the amount paid for that stock
upon exercise of the NQSO. The included amount will be treated as ordinary
income by the optionee and will be subject to income tax withholding by the
Company (either by payment in cash by the optionee or withholding from the
optionee's salary). Upon resale of the shares by the optionee, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
TAX TREATMENT OF THE COMPANY
The Company will be entitled to a deduction in connection with the exercise
of an NQSO by a domestic optionee to the extent that the optionee recognizes
ordinary income and the Company withholds tax. The Company will be entitled to a
deduction in connection with the disposition of ISO Shares only to the extent
that the optionee recognizes ordinary income on a disqualifying disposition of
the ISO Shares.
AMENDMENT AND TERMINATION OF THE 1991 PLAN. The Committee may amend or
terminate the 1991 Plan at any time and in any respect, including modifying the
form of the grant or the exercise notice, except that the Committee cannot
increase the number of shares available under the 1991 Plan (except by operation
of the provisions of the 1991 Plan), change the class of persons eligible to
receive options under the 1991 Plan or materially increase the benefits accruing
to participants under the 1991 Plan without the approval of the stockholders of
the Company. No amendment of the 1991 Plan may adversely affect any outstanding
option or unexercised portion thereof without the optionee's written consent.
If an option granted pursuant to the 1991 Plan expires or terminates for any
reason without being exercised in whole or in part, the shares released from
such option will again become available for grant and purchase under the 1991
Plan.
OUTSTANDING OPTIONS UNDER THE 1991 PLAN. As of June 1, 1995, 902,477 shares
had been issued pursuant to exercises under the 1991 Plan by the Company's
optionees, 1,071 persons held NQSOs under the 1991 Plan to purchase an aggregate
of 5,415,207 shares of common stock, with a weighted average exercise price of
$16.0893 per share and there were 1,732,316 shares of common stock available for
future grants under the 1991 Plan. Over the term of the 1991 Plan, the following
executive officers named in the "Summary Compensation Table" above have been
granted options to purchase shares of Common Stock under the 1991 Plan as
follows: Lawrence F. Probst III, 230,000 shares; William B. Gordon, 150,000
shares; E. Stanton McKee, Jr., 180,000 shares; Mark Lewis, 110,000 shares; and
Nancy L. Smith, 105,000 shares. Current executive officers as a group have been
granted options to purchase 1,455,000 shares, and all employees as a group,
other than executive officers, have been granted options to purchase 5,882,051
shares. The
13
<PAGE>
outstanding options under the 1991 Plan expire from July 25, 2001 to May 15,
2005 (subject to earlier termination if an optionee's association with the
Company terminates). An aggregate of 8,050,000 shares of the Company's
authorized common stock has been reserved for issuance upon the exercise of
options to be granted under the 1991 Plan.
PROPOSED AMENDMENT. At the Meeting, stockholders will be asked to approve
an amendment to the 1991 Plan increasing the number of shares issuable
thereunder by 1,850,000 shares from 8,050,000 shares to 9,900,000 shares. No
options have to date been granted on the basis of such proposed share increase.
EMPLOYEE STOCK PURCHASE PLAN
HISTORY. The Purchase Plan was adopted by the Board on April 25, 1991 and
approved by the stockholders on July 25, 1991. The Purchase Plan has been
amended three times (July 1992, July 1993, and July 1994) since its adoption,
primarily to increase the number of shares available for issuance thereunder and
to update it to reflect changes in relevant tax and corporate laws. The number
of shares have been adjusted to reflect a one share for one share stock dividend
effected in March 1992 and a one share for one share stock dividend effected in
February 1993. As of June 1, 1995, 582,250 shares had been issued and 317,750
shares remained available for issuance under the Purchase Plan.
Set forth below is a summary of the principal features of the Purchase Plan,
which summary is qualified in its entirety by reference to the terms and
conditions of the Purchase Plan. In addition, the Company will provide, without
charge, to each person to whom a proxy statement is delivered, upon request of
such person and by first class mail within one business day of receipt of such
request, a copy of the Purchase Plan. Any such request should be directed as
follows: Stock Administration Department, Electronic Arts Inc., 1450 Fashion
Island Boulevard, San Mateo, California 94404; telephone number (415) 571-7171.
PURPOSE. The purpose of the Purchase Plan is to provide employees of the
Company with a convenient means of acquiring equity in the Company through
payroll deductions and to provide an incentive for continued employment.
ADMINISTRATION. The Purchase Plan may be administered by the Board or by a
committee appointed by the Board. References herein to the "Committee" shall
refer to the Board or the committee, as applicable, unless the context otherwise
requires. The Purchase Plan is currently administered by the Board. The
interpretation or construction by the Committee of any provision of the Purchase
Plan or of any award granted under it is final and binding on all participating
employees.
ELIGIBILITY. All employees of the Company (including Directors who are
employees), or any parent or subsidiary thereof (as defined in the Purchase
Plan), are eligible to participate in the Purchase Plan except the following:
(i) employees who are not employed by the Company (or any parent or subsidiary)
on the 15th day of the month before the beginning of an Offering Period (as
defined below); (ii) employees who are customarily employed for less than 20
hours per week; (iii) employees who are customarily employed for less than 5
months in a calendar year; and (iv) employees who, pursuant to Section 424(d) of
the Code, own or hold options to purchase or who, as a result of participation
in the Purchase Plan, would own stock or hold options to purchase stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or any parent or subsidiary.
At the last reported headcount on June 1, 1995, approximately 1,228
employees were eligible to participate in the Purchase Plan.
PARTICIPATION. Each offering of common stock under the Purchase Plan is for
a period of one year (the "Offering Period"). Offering Periods commence on the
first business day of March and September of each year. The first day of each
Offering Period is the "Offering Date" for such Offering Period. An employee
cannot participate simultaneously in more than one Offering Period. Each
Offering Period consists of two six-month purchase periods (each a "Purchase
Period") commencing on the first business day of March and September. The last
day of each Purchase Period is a "Purchase Date."
Employees may participate in the Purchase Plan during each pay period
through payroll deductions. An employee sets the rate of such payroll
deductions, which may not be less than 2% or more than 10% of the employee's
base salary, wages, commissions, overtime, shift premiums and bonuses plus draws
against commissions, unreduced by the amount by which the employee's salary is
reduced pursuant to Sections 125 or 401(k) of the Code. Eligible employees may
elect to participate in any Offering Period by enrolling as provided under the
terms of the Purchase Plan. Once enrolled, a participating employee will
automatically participate in each succeeding Offering Period unless such
employee withdraws from the Offering Period. After the rate of payroll
deductions for an Offering Period has been set by an employee, that rate
continues to be effective for the remainder of the Offering Period (and for all
subsequent Offering Periods in which the employee is automatically enrolled)
unless otherwise changed by the employee. The employee may increase
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<PAGE>
or lower the rate of payroll deductions for any subsequent Purchase Period but
may only lower the rate of payroll deductions during the current Purchase
Period. Not more than one change may be made effective during any one Purchase
Period.
In any given Purchase Period, no employee may purchase more than (a) twice
the number of shares that could have been purchased with the payroll deductions
if the purchase price were determined by using 85% of the fair market value of a
share of the Company's common stock on the Offering Date or (b) the maximum
number of shares set by the Board. In addition, no employee may purchase shares
at a rate that, when aggregated with all other rights to purchase stock under
all other employee stock purchase plans of the Company, or any parent or
subsidiary of the Company, exceeds $25,000 in fair market value (determined on
the Offering Date) for each year.
PURCHASE PRICE. The purchase price of shares that may be acquired in any
Purchase Period under the Purchase Plan is 85% of the lesser of (a) the fair
market value of the shares on the Offering Date of the Offering Period in which
the participant is enrolled or (b) the fair market value of the shares on the
Purchase Date. The fair market value of the common stock on a given date is the
closing bid price of the common stock on the immediately preceding business day
as quoted on the Nasdaq National Market. On June 1, 1995, the closing bid price
of the Company's common stock was $27.00.
PURCHASE OF STOCK. The number of whole shares an employee may purchase in
any Purchase Period is determined by dividing the total amount of payroll
deductions withheld from the employee during the Purchase Period pursuant to the
Purchase Plan by the price per share determined as described above, subject to
the limitations described above. The purchase takes place automatically on the
last day of the Purchase Period.
WITHDRAWAL. An employee may withdraw from any Purchase Period at any time
but no later than 15 days prior to the Purchase Date. No further payroll
deductions for the purchase of shares will be made for the succeeding Offering
Period unless the employee enrolls in the new Offering Period in the same manner
as for initial participation in the Purchase Plan.
TERMINATION OF EMPLOYMENT. Termination of an employee's employment for any
reason, including retirement or death, immediately cancels the employee's
participation in the Purchase Plan. In such event, the payroll deductions
credited to the employee's account will be returned to such employee or, in case
of death, to the employee's legal representative.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares subject to
any option, and the number of shares issuable under the Purchase Plan, are
subject to adjustment in the event of a recapitalization of the Company's common
stock. In the event of a proposed dissolution or liquidation of the Company, the
Offering Period will terminate and the Board may, in its sole discretion, give
participants the right to purchase shares that would not otherwise be
purchasable until the last day of the applicable Purchase Period.
TAX TREATMENT OF THE PARTICIPANT. Participating employees will not
recognize income for federal income tax purposes either upon enrollment in the
Purchase Plan or upon the purchase of shares. All tax consequences are deferred
until a participating employee sells the shares, disposes of the shares by gift
or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the employee dies while owning the shares, the employee realizes ordinary income
on a sale (or a disposition by way of gift or upon death) to the extent of the
lesser of: (i) 15% of the fair market value of the shares at the beginning of
the Offering Period; or (ii) the actual gain (the amount by which the market
value of the shares on the date of sale, gift or death, exceeds the purchase
price). All additional gain upon the sale or shares is treated as long-term
capital gain. If the shares are sold and the sale price is less than the
purchase price, there is no ordinary income, and the employee has a long-term
capital loss for the difference between the sale price and the purchase price.
If the shares are sold or are otherwise disposed of, including by way of
gift (but not death, bequest or inheritance), within either the one-year or the
two-year holding periods described above (in any case a "disqualifying
disposition"), the employee will realize ordinary income at the time of sale or
other disposition taxable to the extent that the fair market value of the shares
at the date of purchase was greater than the purchase price. This excess will
constitute ordinary income (not currently subject to withholding) in the year of
the sale or other disposition even if no gain is realized on the sale or if a
gratuitous transfer is made. The difference, if any, between the proceeds of
sale and the fair market value of the shares at the date of purchase is a
capital gain or loss. Capital gains may be offset by capital losses and up to
$3,000 of capital losses may be offset annually against ordinary income.
TAX TREATMENT OF THE COMPANY. The Company is entitled to a deduction in
connection with the disposition of shares acquired under the Purchase Plan only
to the extent that the employee recognized ordinary income on a disqualifying
disposition of the shares. The Company treats any transfer of record ownership
of shares, including
15
<PAGE>
transfer to a broker or nominee or into "street name," as a disposition, unless
it is notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, employees are required to notify the Company in writing of the
date and terms of any disposition of shares purchased under the Purchase Plan.
OFFICER PURCHASES. The following table sets forth certain information
concerning the purchase of common stock under the Purchase Plan by each
executive officer named in the Summary Compensation Table above and by all
executive officers as a group (11 persons). The purchases of stock under the
Purchase Plan are made at the discretion of participants, subject to the
limitations described above. Accordingly, future purchases under the Purchase
Plan are not determinable
ELECTRONIC ARTS 1991 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
DISTRIBUTION PERIOD
------------------------------------------------
2/28/94 THROUGH 8/30/94 8/31/94 THROUGH 2/25/95
----------------------- -----------------------
NAME OF INDIVIDUAL OR PURCHASE NUMBER OF PURCHASE NUMBER OF
NUMBER IN GROUP PRICE (1) SHARES PRICE (1) SHARES
---------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Lawrence F. Probst III......................................................... $ 15.5125 371 $ 15.0875 884
William B. Gordon.............................................................. 15.5125 221 15.0875 1,182
E. Stanton McKee............................................................... 15.5125 300 15.0875 1,106
Mark Lewis..................................................................... 0 0 0 0
Nancy L. Smith................................................................. 15.5125 496 15.0875 962
Executive officers as a group (11 persons)..................................... 15.5125 3,470 15.0875 5,317
<FN>
- ------------------------
(1) Purchase price depends on the specific purchase period (as defined in the
Purchase Plan) in which an individual is enrolled.
</TABLE>
PROPOSED AMENDMENT. At the Meeting stockholders will be asked to approve an
amendment to the Purchase Plan increasing the number of shares authorized for
issuance under the Purchase Plan by 150,000 from 900,000 shares to 1,050,000
shares. No shares have been issued under the Purchase Plan to date on the basis
of the proposed share increase.
CERTAIN TRANSACTIONS
From April 1, 1994 to the present, there have been no transactions involving
more than $60,000 between the Company and any executive officer, Director, 5%
beneficial owner of the Company's common stock or member of the immediate family
of any of the foregoing persons, in which any of the foregoing individuals or
entities had a material interest, except as indicated in "Director and Executive
Officer Compensation", "Stock Option Plan" and "Employee Stock Purchase Plan"
above, and as follows:
By Agreement dated September 30, 1991 the Company transferred its interest
in certain technology to The 3DO Company, ("3DO"), a company developing
technology for multimedia markets, in exchange for a substantial minority equity
interest in 3DO and for cash. 3DO was formed in September, 1991 by the Company,
Time Warner Entertainment Company, Kleiner Perkins Caufield & Byers III, and one
other venture capital firm. Additionally, in January 1993, the Company purchased
108,933 shares of Series B Preferred Stock of 3DO from 3DO for $653,598.
In June 1994, the Company purchased 244,235 shares of common stock of 3DO
for $3,022,408. The Company currently owns approximately 18.1% of the
outstanding shares of 3DO. W. M. (Trip) Hawkins III, a five percent (5%)
stockholder of the Company, is President, Chief Executive Officer and Chairman
of the Board of 3DO. Pursuant to an incentive stock plan of 3DO and in
connection with 3DO's May 1993 initial public offering and June 1994 public
offering, Mr. Hawkins purchased shares currently representing approximately 9%
of the outstanding common stock of 3DO.
In December 1992, the Company prepaid $2,000,000 of software royalties in
connection with an offer by 3DO to all of its software licensees to reduce its
royalty rate from $3.00 to $2.00 per copy to the extent of royalties prepaid by
December 1992. Accordingly, the Company prepaid the royalties on the first one
million units of software published by the Company based on the 3DO technology.
In addition, the Company prepaid royalties of approximately $800,000 for two
products developed by 3DO and published and distributed by the Company.
16
<PAGE>
PROPOSAL NO. 5 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed KPMG Peat Marwick LLP ("Peat Marwick") as its
principal independent accountants to perform the audit of the Company's
financial statements and the stockholders are being asked to ratify such
appointment. Peat Marwick has audited the Company's financial statements for
fiscal 1987 through fiscal 1995. Representatives of Peat Marwick will be present
at the Meeting, will be given an opportunity to make a statement at the Meeting
if they desire to do so and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's 1996 Annual Meeting of stockholders must
be received by the Company by March 29, 1996.
OTHER MATTERS
Section 16(a) of the Securities Exchange Act of 1934 as amended, requires
the Company's Directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. The Company has adopted
procedures to assist its Directors and officers in complying with Section 16(a)
of the Securities Exchange Act of 1934 as amended, which includes assisting the
officer or Director in preparing forms for filing.
To the Company's knowledge, based solely upon review of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that the Company's officers, Directors and
greater than ten percent stockholders complied with all Section 16(a) filing
requirements during the fiscal year ended March 25, 1995.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
By Order of the Board of Directors
Lawrence F. Probst III
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THANK YOU FOR YOUR
PROMPT ATTENTION TO THIS MATTER.
17
<PAGE>
[LOGO]
<PAGE>
ELECTRONIC ARTS INC.
PROXY FOR 1995 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Electronic Arts Inc., a Delaware corporation
(the "Company") hereby appoints Lawrence F. Probst III and E. Stanton
McKee, Jr., and each of them, proxies and attorneys-in-fact, with full
power of substitution to each, on behalf of and in the name of the
undersigned, to represent the undersigned at the 1995 Annual Meeting of
Stockholders of the Company to be held at the Company's corporate
headquarters, 1450 Fashion Island Boulevard, San Mateo, California on
August 3, 1995, at 2:00 p.m., and at any adjournment thereof, and to vote
all shares the undersigned would be entitled to vote if personally present
at the meeting on the following matters:
<TABLE>
<S> <C><C> <C><C>
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below (except as / / WITHHOLD AUTHORITY to vote for the
marked to the contrary below) nominees listed below
NOMINEES: M. Richard Asher, William J. Byron, Daniel H. Case III, Gary M. Kusin, Timothy Mott, Lawrence F. Probst III
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE FOLLOWING LINE:
- --------------------------------------------------------------------------------------------------------------------
2. AMENDMENT TO 1991 STOCK OPTION PLAN
/ / FOR / / AGAINST / / ABSTAIN
3. AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
/ / FOR / / AGAINST / / ABSTAIN
4. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(CONTINUED AND TO BE EXECUTED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR ELECTION AND FOR
PROPOSALS 2, 3, AND 4.
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE SIX NOMINEES FOR ELECTION AND FOR PROPOSALS 2, 3, AND 4.
In their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof to
the extent authorized by Rule 14a-4(c) promulgated by the Securities and
Exchange Commission.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
The undersigned hereby acknowledges receipt of (a) the Notice of 1995 Annual
Meeting of Stockholders of the Company; (b) the accompanying Proxy Statement;
and (c) the Annual Report to Stockholders for the year ended March 31, 1995.
Please sign exactly as your
name(s) appears on your stock
certificate. If shares are held
in the names of two or more
persons (including husband and
wife, as joint tenants or
otherwise) all persons must
sign. If shares are held by a
corporation, the proxy should be
signed by the president or vice
president and the secretary or
assistant secretary. Fiduciaries
who execute the proxy should
give their full title.
________________________________
Signature
________________________________
Signature
Dated: , 1995
