<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 1996 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 1996 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
Wednesday, July 31, 1996 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 900,000 shares from a total of 9,900,000 shares
to a total of 10,800,000 shares.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
4. 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 3, 1996 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 AND CHIEF EXECUTIVE OFFICER
San Mateo, California
June 27, 1996
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, 1996
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
1996 Annual Meeting of Stockholders of the Company to be held at the Company's
corporate headquarters, 1450 Fashion Island Boulevard, San Mateo, California, on
Wednesday, July 31, 1996 at 2:00 p.m. (the "Meeting"). Only stockholders of
record of the Company's common stock at the close of business on June 3, 1996
will be entitled to vote. At the close of business on that date, the Company had
53,065,600 shares of common stock outstanding and entitled to vote. A majority,
or 26,532,801 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, 1996. 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, D. F. King & Co., Inc. 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 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) 64 Consultant 1984
William J. Byron (2) 63 Self-employed 1989
Daniel H. Case III (2) 39 President and Chief Executive Officer, 1993
Hambrecht & Quist Group and Hambrecht &
Quist LLC
Gary M. Kusin 45 Chairman, Kusin Gurwitch Cosmetics, LLC 1995
Timothy Mott (1)(3) 47 Partner, Ironwood Capital 1990
Lawrence F. Probst III (3) 46 Chairman and Chief Executive Officer of 1991
the Company
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
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 pre-recorded records and tapes.
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
serves on the Board of Directors of Rational Software Corporation and Hambrecht
& Quist, Inc. and is on the audit committee of Rational Software Corporation.
Mr. Case joined Hambrecht & Quist in 1981 and has held positions in management,
corporate finance, mergers and acquisitions and venture capital.
MR. KUSIN has been a Director of the Company since August, 1995. 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. Mr. Mott is also a Director of Edmark
Corporation, an educational software company, and serves on the nominating
committee of that corporation. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR.
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.
2
<PAGE>
Messrs. Asher, Byron and Case 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, Mott and Probst 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 1996 fiscal year, the Board of Directors met four times
and approved one Action by Written Consent, the Compensation Committee met twice
and approved 14 Actions by Written Consent, the Audit Committee met five times
and the Nominating Committee met once. In fiscal 1996, 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 24, 1996, 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>
Putnam Investment Management Company (2) 5,489,746 10.4%
One Post Office Square
Boston, Massachusetts 02109
Massachusetts Financial Services Company (3) 2,876,345 5.4%
("MFS")
500 Boylston Street
Boston, Massachusetts 02116
Oppenheimer Group, Inc. (4) 2,758,080 5.2%
200 Liberty Street
New York, NY 10281
Lawrence F. Probst III (5) 544,565 1.0%
William B. Gordon (6) 332,313 *
E. Stanton McKee, Jr. (7) 329,689 *
Mark Lewis (8) 175,769 *
Nancy L. Smith (9) 164,943 *
M. Richard Asher (10) 154,447 *
Timothy Mott (11) 140,656 *
Don A. Mattrick (12) 123,948 *
William J. Byron (13) 57,707 *
Daniel H. Case III (14) 18,246 *
Gary M. Kusin (15) 5,760 *
All executive officers and Directors as a group (16 2,255,571 4.1%
persons) (16)
</TABLE>
- ------------------------
*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) Certain Putnam Investment managers (together with their parent
corporations, Putnam Investments, Inc. and Marsh & McLennan Companies,
Inc.), are considered "beneficial owners" in the aggregate of the number of
shares, which shares were acquired for investment purposes by such
investment managers for certain of their advisory clients, and the number
of shares are based on a confirmation from Putnam dated May 31, 1996.
(3) The number of shares shown to have sole voting power by Massachusetts
Financial Services is 2,875,745 and no voting power is 600 shares. MFS has
confirmed these numbers as of May 31, 1996.
(4) The number of shares shown is as of May 31, 1996 and has been confirmed by
Oppenheimer Group, Inc. on June 3, 1996.
(5) Represents 2,865 shares held by Mr. Probst, and 541,700 shares subject to
options exercisable within 60 days of May 24, 1996.
(6) Represents 48,413 shares held by Mr. Gordon, and 283,900 shares subject to
options exercisable within 60 days of May 24, 1996.
(7) Represents 168,389 shares held by Mr. McKee, and 161,300 shares subject to
options exercisable within 60 days of May 24, 1996.
(8) Represents 31,369 shares held by Mr. Lewis, and 144,400 shares subject to
options exercisable within 60 days of May 24, 1996.
(9) Represents 41,783 shares held by Ms. Smith, and 123,160 shares subject to
options exercisable within 60 days of May 24, 1996.
(10) Represents 120,203 shares held by Mr. Asher, and 34,244 shares subject to
options exercisable within 60 days of May 24, 1996.
(11) Represents 120,164 shares held by Mr. Mott, and 20,492 shares subject to
options exercisable within 60 days of May 24, 1996.
(12) Represents 4,115 shares held by Mr. Mattrick, and 119,833 shares subject to
options exercisable within 60 days of May 24, 1996.
(13) Represents 26,664 shares held by Mr. Byron, and 31,043 shares subject to
options exercisable within 60 days of May 24, 1996.
(14) Represents 18,246 shares subject to options exercisable within 60 days of
May 24, 1996 granted to Mr. Case.
(15) Represents 5,760 shares subject to options exercisable within 60 days of
May 24, 1996 granted to Mr. Kusin.
(16) Includes 1,676,949 shares subject to options exercisable within 60 days of
May 24, 1996 (including the options described in notes (5) through (15)
above).
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, 1991, through March 31, 1996,
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>
3/91 $100.0 $100.0 $100.0
3/92 $251.7 $127.5 $117.7
3/93 $619.9 $146.5 $129.1
3/94 $556.3 $158.2 $144.3
3/95 $479.5 $175.9 $184.7
3/96 $561.6 $238.9 $254.2
</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, prorated 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, Messrs. Asher, Byron, Case and Mott, each a
non-employee director received 5,900 options at an exercise price of $34.125.
Mr. Kusin, also a non-employee director received 24,000 options at an exercise
price of $34.125 which is the amount allowed under the Plan for a new director.
These options were granted in connection with the Directors' election and
re-election to the Board. Such options vest in equal monthly installments over
fifty months from the grant date.
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 five other highest paid executive officers of the Company
whose salary and bonus in fiscal 1996 exceeded $100,000. Two executive officers
received the same total compensation during the last fiscal year standing as the
fifth and sixth most highly compensated executives, and thus both are included
in the information described below. This information includes the dollar values
of base salaries, bonus awards, the number of stock options granted and certain
other compensation, if any, whether paid or deferred. The Company does not grant
SARs to executive officers and has no long term compensation benefits other than
options.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------
--------------------------------------------- SECURITIES
SALARY OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) (1) BONUS ($)(2) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)(3)
- ---------------------------------- --------- ------------ ------------ ----------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 1996 $ 466,321 $ 14,250 -- 180,000(4) $ 594
Chairman and Chief 1995 424,123 168,191 -- 100,000 621
Executive Officer 1994 353,942 156,736 -- 50,000 5,554
Don A. Mattrick 1996 227,572 152,894 -- 500,000(4) --
Senior Vice President, 1995 167,415 126,104 -- 30,000 --
North American Studios 1994 110,565 49,049 -- -- --
E. Stanton McKee, Jr. 1996 271,335 59,100 -- 60,000(4) 594
Senior Vice President, 1995 258,077 96,465 -- 60,000 621
Chief Financial and 1994 218,077 74,685 -- 50,000 5,140
Administrative Officer
Mark Lewis 1996 243,701 58,100 -- 30,000 297
Senior Vice President, 1995 232,207 76,124 75,130(6) 50,000 329
International 1994 165,673 82,442 16,781(6) 20,000 --
Nancy L. Smith 1996 235,684 57,551 -- 60,000(4) 591
Senior Vice President, 1995 220,192 80,829 -- 45,000 48,109(5)
Sales 1994 192,269 66,471 -- 20,000 4,526
William B. Gordon 1996 285,936 7,296 -- 60,000(4) 594
Executive Vice President, 1995 272,115 95,525 -- 60,000 621
Marketing 1994 237,365 82,386 -- 30,000 5,495
</TABLE>
- ------------------------------
(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) Includes 3/8/96 repriced grants: Probst: 90,000; Mattrick: 250,000; McKee:
30,000; Smith: 30,000; Gordon: 30,000; and 9/27/95 grants that were
cancelled: Probst: 90,000; Mattrick: 250,000; McKee: 30,000; Smith: 30,000;
Gordon: 30,000.
(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 tax equalization payment from Electronic Arts (UK) Ltd.
7
<PAGE>
STOCK OPTIONS
The following table sets forth information regarding individual grants of
options to purchase the Company's common stock during the Company's 1996 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 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (5)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------------
GRANTED IN FY1996 (1) SHARE DATE 5% 10%
----------- --------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III..................... 90,000 2.11 % $ 34.75(2) 9/27/05 $ 1,966,868 $ 4,984,430
Lawrence F. Probst III..................... 90,000 2.11 23.50(3) 3/08/06 1,330,112 3,370,765
Don A. Mattrick............................ 250,000 5.86 34.75(2) 9/27/05 5,463,522 13,845,638
Don A. Mattrick............................ 250,000 5.86 23.50(3) 3/08/06 3,694,756 9,363,237
E. Stanton McKee, Jr....................... 30,000 .70 34.75(2) 9/27/05 655,623 1,661,477
E. Stanton McKee, Jr....................... 30,000 .70 23.50(3) 3/08/06 443,371 1,123,588
Mark Lewis................................. 30,000 .70 34.75(4) 9/27/05 655,623 1,661,477
Nancy L. Smith............................. 30,000 .70 34.75(2) 9/27/05 655,623 1,661,477
Nancy L. Smith............................. 30,000 .70 23.50(3) 3/08/06 443,371 1,123,588
William B. Gordon.......................... 30,000 .70 34.75(2) 9/27/05 655,623 1,661,477
William B. Gordon.......................... 30,000 .70 23.50(3) 3/08/06 443,371 1,123,588
</TABLE>
- ------------------------------
(1) The Company granted 4,268,169 options to employees in fiscal 1996. 1,753,329
of those options were granted as part of a repricing in March, 1996 to
employees; an equal number were cancelled as part of the repricing.
(2) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on September 27, 1995 on the Nasdaq
National Market. The options became exercisable as to 6% on September 1,
1995 and thereafter at a rate of 2% per month for the next 47 months. These
options were canceled on March 8, 1996 and replacement options were granted.
(3) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on March 8, 1996 on the Nasdaq National
Market. The options became exercisable as to 5% on May 1, 1996 and
thereafter at a rate of 1.666% per month for the next 57 months. The options
will expire on the earlier of the tenth anniversary of the date of grant or
three months following the termination of the optionee's employment with the
Company.
(4) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on September 27, 1995 on the Nasdaq
National Market. The options became exercisable as to 6% on September 1,
1995 and thereafter at a rate of 2% per month for the next 47 months. Mr.
Lewis did not reprice this option and it will expire on the earlier of the
tenth anniversary of the date of grant or three months following the
termination of the optionee's employment with the Company.
(5) (i) Based on 52,388,466 shares of the Company's common stock outstanding as
of September 27, 1995 and a closing bid price of common stock that day of
$34.75, and
(ii) Based on 52,720,728 shares of the Company's common stock outstanding as
of March 8, 1996 and a closing bid price of common stock for that day of
$23.50, the following gains for all stockholders, assuming a ten year term,
would be:
<TABLE>
<CAPTION>
5% STOCK PRICE 10% STOCK PRICE
APPRECIATION APPRECIATION
- ------------------------- --------------------------
<S> <C>
(i) $1,144,902,161 $2,901,406,863
(ii) $779,160,890 $1,974,546,674
</TABLE>
8
<PAGE>
The following table sets forth certain information concerning the exercise
of stock options during fiscal 1996 by each of the executive officers named in
the Summary Compensation Table above and the number and value at Fiscal Year end
March 29, 1996 of unexercised options held by said individuals.
1996 AGGREGATED OPTION EXERCISES AND MARCH 29, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT MARCH 29, 1996 AT MARCH 29, 1996 (2)
SHARES ACQUIRED VALUE (1) -------------------------- ----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III.............. 0 $ 0 515,800 204,200 $ 10,570,600 $ 1,384,400
Don A. Mattrick..................... 0 0 96,600 267,400 2,014,425 976,200
E. Stanton McKee, Jr................ 0 0 144,400 105,600 1,914,750 857,750
Mark Lewis.......................... 100,000 3,105,438 133,200 78,800 2,377,800 557,200
Nancy L. Smith...................... 44,000 969,412 112,260 81,300 2,297,745 609,500
William B. Gordon................... 25,000 842,626 284,400 102,600 5,557,925 812,700
</TABLE>
- ------------------------------
(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 29, 1996 ($26.50) less the exercise price of the options.
The following table sets forth information with respect to the participation
by the Company's current and former executive officers in all option repricing
programs implemented by the Company during the last ten fiscal years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF ORIGINAL
SECURITIES EXERCISE OPTION TERM
UNDERLYING MARKET VALUE OF PRICE AT NEW REMAINING AT DATE
OPTIONS STOCK AT TIME TIME OF EXERCISE OF REPRICING OR
NAME DATE REPRICED OF REPRICING REPRICING PRICE AMENDMENT
- -------------------------------------- --------- ----------- --------------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 10/26/90 180,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
Chairman & CEO 10/26/90 20,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
03/08/96 90,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
Don A. Mattrick 03/08/96 250,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
S.V.P., North American Studios
E. Stanton McKee, Jr. 10/26/90 40,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
S.V.P. & CFO 03/08/96 30,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
Mark Lewis 10/26/90 72,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
S.V.P., International
Nancy L. Smith 03/08/96 30,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
S.V.P., Sales
William B. Gordon 10/26/90 72,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
E.V.P., Marketing 03/08/96 30,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
David L. Carbone 03/08/96 15,000 $ 23.5000 $ 34.7500 $ 23.5000 9 Years 203 Days
V.P., Finance
Monty Finefrock 10/26/90 76,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
S.V.P. & G. M., San Mateo Studios 03/08/96 10,000 $ 23.5000 $ 26.7500 $ 23.5000 9 Years 306 Days
W. M. (Trip) Hawkins 10/26/90 180,000 $ 2.1250 $ 2.5438 $ 2.3375 9 Years 162 Days
Former President, CEO 10/26/90 56,000 $ 2.1250 $ 2.5438 $ 2.3375 9 Years 162 Days
Stewart J. Bonn 10/26/90 120,000 $ 2.1250 $ 2.3125 $ 2.1250 9 Years 162 Days
Former V.P.
</TABLE>
9
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
The Company presently has no employment contracts in effect for any
executive officer, 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 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
RESPONSIBILITIES AND COMPOSITION OF THE COMPENSATION COMMITTEE
The Compensation Committee is currently composed of three independent
non-employee Directors who have no interlocking relationships as defined by the
SEC. The current members of the Compensation Committee are Messrs. Asher, Byron
and Case. The Compensation Committee establishes the general compensation policy
for the Company's executives and reviews the salaries, bonuses and stock
incentives of each of the executive officers including the Chief Executive
Officer. The Compensation Committee also administers the Company's equity
compensation plans, including the 1991 Stock Option Plan for all employees and
the bonus plan for executive officers (the "Bonus Plan").
COMPENSATION POLICY, OBJECTIVES AND ISSUES
The Compensation Committee has historically believed, and continues to
believe, that the compensation of the Company's executive officers should be
significantly influenced by the Company's performance and that a substantial
portion of executives' incentives should come from equity. The Compensation
Committee also understands the need for changing compensation strategies in a
rapidly evolving industry. During the last fiscal year, the Compensation
Committee has addressed two additional factors in its compensation strategy: the
current recruiting environment, and the effect on the Company's executive
compensation of the current state of the industry in general.
In the last fiscal year, recruiting efforts aimed at the Company's executive
officers have been intense. Large software and media companies frequently offer
significantly larger cash compensation than does the Company, placing pressure
on the Company's base salary and cash bonus compensation. Small start-up
companies such as those proliferating in the on-line business areas offer
significant potential equity gains which are difficult for more mature companies
like the Company, to match without significant shareholder dilution. In the last
eighteen (18) months three of the Company's executive officers have resigned to
work with small start-up ventures, and virtually all of the executives are being
recruited on a regular basis.
In addition, in the last fiscal year the Company's stock price has varied
significantly despite what the Compensation Committee believes to be a positive
overall performance by the executive staff. The Company posted revenue gains and
positive earnings in a year in which the transition to new platforms
accelerated, and industry revenues in the Company's core business -- 16 bit
cartridge products -- declined approximately 30%. Thus, at a time when executive
performance has been excellent, and the Company has excelled and performed
better than its competitors in a difficult period in its industry, the incentive
value of the executives' equity compensation declined.
For fiscal year 1996, the Compensation Committee's primary challenge was to
identify and implement mechanisms to effectively compete for executive talent
necessary for the Company's continued success without creating unacceptable
pressure on the Company's income statement or unacceptable dilution to the
Company's stockholders. The Compensation Committee expects this challenge to
continue for the foreseeable future.
Accordingly, the Compensation Committee made decisions for fiscal year 1996
executive compensation designed to continue its "pay for performance" policy, by
tying a significant portion of each executive's compensation to the Company's
earnings performance and to effectively compete for the continuing services of
the Company's executive officers.
DATA CONSIDERED AND PROCESS USED
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 high technology companies and has
provided this data to the Compensation Committee. Data was compiled from 27 high
technology companies with median sales approximately equal to those of the
Company. The factors used to determine the participants in the survey
10
<PAGE>
included annual revenues, industry, growth rate and geography. Sales growth and
operating profit in particular were evaluated to ensure that the survey
companies had a record of financial success. The Company's sales growth is at
the 48th percentile of the total survey companies and the 46th percentile of the
software companies included in the survey. The Company's operating profit is at
the 58th percentile of the total survey companies and 53rd percentile of the
software companies included in the survey. In order to ensure use of the
appropriate competitive data for the Senior Vice President, International,
salary and bonus data from the European software and high technology industries
were also reviewed.
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 contributions.
While equity compensation practices were considered, details on grants and terms
of stock options were not available.
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 overlap considerably with the companies contained in the H &
Q Index. Approximately seventy five percent (75%) 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 and its
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.
EXECUTIVE COMPENSATION
Executive compensation is awarded by the Compensation Committee in three
components: base salary, cash bonus and equity incentives.
BASE SALARY. Base salaries have been established at the approximate median
of comparable positions at companies included in the survey. In addition, the
Compensation Committee considered each executive's performance over the last
year as reported by the CEO as well as each executive's responsibility level.
For fiscal year 1996, executive officers' base salaries were at the approximate
average base salary levels in effect for comparable positions with survey
companies. Increases for the named executive officers were effected in October,
1995 and constituted an average increase of approximately 5.5 percent over the
prior year (excluding Mr. Mattrick who received a significant promotional
increase reflecting his new responsibilities) and increases for all executive
officers constituted an average increase of approximately 6 percent of the prior
years' base salaries.
BONUS. The Bonus Plan was established by the Compensation Committee in
October of 1995. The Compensation Committee assigned a target bonus to each
executive officer (expressed as a percentage of that executive's base salary),
and approved the overall mechanics and structure of the Bonus Plan. The bonus
for each executive was divided into six (6) parts, one part based on the
Company's financial performance for each fiscal quarter, one part based on the
Company's financial performance for the fiscal year, and one part discretionary
based on the executive's job performance. No bonus attributable to financial
results was paid to any executive officer, excepting Mr. Mattrick who received a
bonus for the financial performance of Electronic Arts Canada prior to his
becoming an executive officer. Discretionary bonuses paid for executive officers
excluding the CEO ranged from ten percent (10%) to 1.75 times the discretionary
bonus targets, reflecting the CEO and Compensation Committee's evaluation of
varying individual performances. In total, and excluding the CEO, bonuses for
executive officers were approximately thirty seven percent (37%) of the target
bonuses for the fiscal year.
STOCK OPTIONS. In September 1995 the Committee made stock option grants to
certain executive officers including the CEO. See "Option Grants in Fiscal 1996"
above. An additional grant was made to Mr. Mattrick in October, 1995, reflecting
his promotion to Senior Vice President, North American Studios. Stock options
typically have been granted to executive officers when the executive first joins
the Company, in connection with a significant change in responsibilities,
annually to provide continuing incentives for continued employment and,
occasionally, to achieve equity within a peer group.
1996 annual stock option grants were made by the Compensation Committee as
continuing incentives for continuing employment. In addition, Mr. Mattrick was
awarded options based on his promotion and assumption of significant additional
responsibilities. The number of shares subject to each stock option granted to
an executive officer was
11
<PAGE>
calculated to achieve a value in unvested options equal to a multiple of each
executive's annual salary assuming both growth and stock appreciation. All
grants were made at fair market value on the date of grant and by their terms
vest from September 1995 over a 50 month period.
REPRICING
In light of the decline of the Company's stock price since the annual
incentive grants made to employees generally in July and to executives in
September, 1995, the resulting negative impact on morale and the intense
recruiting pressure described above, in March 1996 the Compensation Committee
decided to reprice certain outstanding stock options issued to all employees
including executive officers. Employees, including executive officers, who had
options having an exercise price of greater than $23.50 were offered the
opportunity to surrender those grants in exchange for an equal number of options
having an exercise price of $23.50, the market price on the date of the
Compensation Committee's action. Only the annual incentive options granted to
executives since September of 1995 were eligible for the repricing. In exchange,
the exercise period for the new options was increased to 60 months from the 50
month vesting period of the canceled options and vesting was restarted as of the
date of the Compensation Committee action.
The Company's stock price has been and continues to be variable. During
fiscal year 1996, the stock traded from $20.13 to $41.75. Over the last two
fiscal years, the stock has traded from $13.00 to $41.75. At the time of the
1996 repricing, the highest option price outstanding to employees was $37.875 --
more than $14.00 a share over the market price on the date of the repricing.
This decline occurred in less than one year. Similarly, with respect to the
options of executive officers, the market price on the date of the 1996
repricing was $11.25 below the exercise price of the executive officers'
repriced grants -- the executive grants were nearly 50 percent "underwater" in
the six months from the date of grant in September, 1995 to the date of the
repricing. The September 1995 executive grants were made at a time when the
price of the Company's stock was increasing, notwithstanding that the Company's
prior quarterly performance was its lowest since the Company became a public
company.
The Compensation Committee and the Board, respectively, believed that the
Company's stock price declined for reasons unrelated to executive performance.
(See "Compensation Policy, Objectives and Issues" above). As the Company's
performance graph at page 5 clearly shows, the Company's stock has been volatile
but has over the long term significantly outperformed both the NASDAQ Market
Index and the H&Q High Technology Index for total return on investment.
The Compensation Committee considered several alternatives to the repricing
of executive stock options:
(i) Permitting the equity incentives to remain with little actual
financial incentive value was unacceptable in light of the reduced cash
compensation and the intensive recruiting of the executive staff.
(ii) Similarly, the Compensation Committee decided against granting
substantial additional options to executives because of the dilutive effect
of such an action, and because recovery of the market price of the stock
could result in windfalls for the executives.
(iii) Likewise, the Compensation Committee decided against any
significant increases in cash compensation to executive officers due to both
the negative impact such an action would have on the Company's earnings and
the compensation Committee's "pay for performance" compensation policy.
The Compensation Committee decided to effect the repricing as the best
alternative for retaining its executive staff in exchange for a restarted and
longer vesting period to insure a direct correlation between the benefit to the
Company and the benefit to the executives.
FISCAL YEAR 1996 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
In October of 1995 the Compensation Committee adjusted the base salary for
Mr. Probst by approving an increase of five and one half percent to the level of
base salary in effect for him for the 1996 fiscal year. The base salary as so
adjusted is slightly below 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 Compensation Committee also
established a target bonus for Mr. Probst under the Bonus Plan for fiscal 1996
which was based upon the market compensation data discussed above. Mr. Probst's
bonus is measured in accordance with the Bonus Plan described above but is based
solely on the Company's quarterly and fiscal year earnings. Mr. Probst's bonus
for fiscal 1996 was $14,250, or less than ten percent of his fiscal year 1995
bonus, and his overall cash compensation decreased over eighteen percent (18%)
from the prior year.
In September 1995, the Compensation Committee also made a new stock option
grant to Mr. Probst for 90,000 shares based upon the retention and incentive
factors discussed above, taking into account prior option grant history,
12
<PAGE>
the level of vested versus unvested shares and the number of shares Mr. Probst
already owned as of September 1995. The grant reflects the Compensation
Committee's continuing policy to subject a substantial 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. Mr. Probst's
September, 1995 stock option was repriced like the other executive officers as
described above, reflecting the Compensation Committee's evaluation of Mr.
Probst's performance and the Board's strong desire to continue to provide strong
incentives to Mr. Probst.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
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 Compensation
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 Compensation Committee has reviewed the terms of
those arrangements most likely to be subject to Section 162(m). The Compensation
Committee believes that the amounts paid under existing executive compensation
arrangements will be deductible within the limits of Section 162(m). While the
Compensation 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 1996
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
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 900,000 shares from a total of 9,900,000 shares to a total of 10,800,000
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.
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
13
<PAGE>
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 five times since its
adoption (July 1992, November 1992, July 1993, July 1994, and August 1995),
primarily to increase the number of shares available for issuance thereunder and
to update the 1991 Plan to reflect changes in relevant tax and securities 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 two (2) or more Board members appointed by the Board.
Currently, the 1991 Plan is administered by the Compensation Committee, none of
whom are 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.
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 May 24, 1996,
approximately 1,563 employees, including nine (9) executive officers, were
eligible to receive options under the 1991 Plan. No optionee is eligible to
receive option grants for 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 May 24, 1996, 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
$30.875.
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
14
<PAGE>
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.
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
will generally 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. 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 certain amendments may
require the approval of the stockholders of the Company in accordance with
applicable laws and regulations. No amendment of the 1991 Plan may adversely
affect any outstanding option or unexercised portion thereof without the
optionee's written consent.
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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 May 24, 1996, 2,105,470
shares had been issued pursuant to exercises under the 1991 Plan by the
Company's optionees, 1,256 persons held NQSOs under the 1991 Plan to purchase an
aggregate of 5,997,799 shares of common stock, with a weighted average exercise
price of $19.2733 per share and there were 1,796,731 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, 410,000 shares; Don A. Mattrick, 730,000
shares; E. Stanton McKee, Jr., 240,000 shares; Mark Lewis, 140,000 shares; Nancy
L. Smith, 165,000 shares and William B. Gordon, 210,000 shares. Current
executive officers as a group have been granted options to purchase 2,760,000
shares, and all employees as a group, other than executive officers, have been
granted options to purchase 9,716,846 shares. The outstanding options under the
1991 Plan expire from July 25, 2001 to April 23, 2006 (subject to earlier
termination if an optionee's association with the Company terminates). An
aggregate of 9,900,000 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 900,000 shares from 9,900,000 shares to 10,800,000 shares. No
options have to date been granted on the basis of such proposed share increase.
If the proposed amendment is not approved, the share increase will not be
implemented.
CERTAIN TRANSACTIONS
From April 1, 1995 to the present, there have been no transactions involving
more than $60,000 between the Company and any executive officer, any Director,
any security holder known to the Company to be a 5% beneficial owner of the
Company's common stock or any 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" and "Stock Option Plan" above and pursuant to the Company's
Employee Stock Purchase Plan in which all full time employees of the Company are
eligible to participate.
PROPOSAL NO. 3 -- 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 1996. 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. In the event that the stockholders fail to ratify the selection of
Peat Marwick, the Board of Directors would reconsider such selection. Even if
its selection is ratified, the Board in its discretion may direct the
appointment of a different independent auditing firm at any time during the year
if the Board believes that such a change would be in the best interest of the
Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's 1997 Annual Meeting of stockholders must
be received by the Company by March 29, 1997.
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.
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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 29, 1996.
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 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.
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ELECTRONIC ARTS INC.
PROXY FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
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 1996 Annual Meeting of Stockholders of the
Company to be held at the Company headquarters, 1450 Fashion Island Boulevard,
San Mateo, California on July 31, 1996, 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:
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 and 3. 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.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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Please mark your votes as indicated in this example
/X/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR ELECTION AND FOR
PROPOSALS 2 and 3.
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.
1. ELECTION OF DIRECTORS.
FOR all nominees listed below (except as marked to the contrary below)
/ /
WITHHOLD AUTHORITY to vote for the nominees listed below
/ /
NOMINEES: M. Richard Asher, William J. Byron, Daniel H. Case III, Gary M.
Kusin, Timothy J. 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. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
FOR
/ /
AGAINST
/ /
ABSTAIN
/ /
The undersigned hereby acknowledges receipt of (a) the Notice of 1996 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, 1996.
Dated:____________________________________________________________________, 1996
________________________________________________________________________________
Signature
________________________________________________________________________________
Signature
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.
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