<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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> 2
LOGO
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 1997 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,
July 31, 1997 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 Certificate of Incorporation to
increase the number of authorized shares by 34,000,000 shares from
71,000,000 shares to 105,000,000 shares and to increase the number of
authorized shares of common stock from 70,000,000 to 104,000,000.
3. To approve an amendment to the Company's Directors' Stock Option
Plan to increase the number of shares of the Company's common stock
reserved for issuance under such Plan by 50,000 shares from 600,000 shares
to a total of 650,000 shares.
4. 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 2,200,000 shares from 10,800,000 shares to a
total of 13,000,000 shares.
5. 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 100,000 shares from 1,050,000
shares to a total of 1,150,000 shares.
6. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
7. 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, 1997 are
entitled to notice of and to vote at the Meeting and any adjournment thereof.
By Order of the Board of Directors
LOGO
Lawrence F. Probst III
Chairman and Chief Executive Officer
San Mateo, California
June 24, 1997
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> 3
LOGO
------------------------------
PROXY STATEMENT
------------------------------
JUNE 24, 1997
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
1997 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, July 31, 1997 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, 1997
will be entitled to vote. At the close of business on that date, the Company had
shares of common stock outstanding and entitled to vote. A majority,
or 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 24, 1997. 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 Proposals No. 1, 3, 4, 5, and 6 being
submitted to the stockholders for their consideration. An affirmative vote of a
majority of all the shares eligible to vote is required for approval of Proposal
No. 2 being submitted to the stockholders. 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.
1
<PAGE> 4
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.
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) 65 Consultant 1984
William J. Byron (2) 64 Self-employed 1989
Daniel H. Case III (2) 40 President and Chief Executive 1993
Officer, Hambrecht & Quist Group
and Hambrecht & Quist LLC
Gary M. Kusin 46 Chairman, Kusin Gurwitch 1995
Cosmetics, LLC
Timothy Mott (1)(3) 48 Partner, Ironwood Capital 1990
Lawrence F. Probst III (3) 47 Chairman and Chief Executive 1991
Officer of 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. Mr. Asher is a Director of
several private companies.
MR. BYRON has been a Director of the Company since January 1989. In
addition, from 1971 to 1981 he was Sr. Vice President of Sanyo Electric Consumer
Products Division, from July 1985 through July 1988 its President and from
January 1987 through July 1988 Vice Chairman of the Sanyo Fisher Corporation.
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.
3
<PAGE> 5
MR. MOTT has been a Director of the Company since September 1990. He is
currently a partner of Ironwood Capital. 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.
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 1997 fiscal year, the Board of Directors met four
times and approved two Actions by Written Consent, the Compensation Committee
met three times and approved 13 Actions by Written Consent, the Audit Committee
met four times and the Nominating Committee met once. In fiscal 1997, 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).
4
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 23, 1997,
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 PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
-------------------------------------------------- ----------------------- ---------
<S> <C> <C>
Putnam Investment Management Company (2) 6,134,175 11.3%
One Post Office Square
Boston, Massachusetts 02109
Montag & Caldwell, Inc. (3) 5,142,196 9.5%
3343 Peachtree Road
1100 Atlanta Financial Center
Atlanta, GA 30326-1450
Lawrence F. Probst III (4) 638,981 1.2%
E. Stanton McKee, Jr. (5) 380,389 *
William B. Gordon (6) 244,913 *
Mark Lewis (7) 221,379 *
Don A. Mattrick (8) 164,148 *
Timothy Mott (9) 149,490 *
M. Richard Asher (10) 131,280 *
William J. Byron (11) 67,888 *
Daniel H. Case III (12) 28,724 *
Gary M. Kusin (13) 13,262 *
All executive officers and Directors as a group
(14 persons) (14) 2,261,863 4.2%
</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 shown is as of April 30, 1997 and has been confirmed by Putnam on
May 23, 1997.
(3) The number of shares shown is as of May 7, 1997 and has been confirmed by
Montag & Caldwell, Inc. on May 23, 1997.
(4) Represents 3,981 shares held by Mr. Probst, and 635,000 shares subject to
options exercisable within 60 days of May 23, 1997.
(5) Represents 159,389 shares held by Mr. McKee, and 221,000 shares subject to
options exercisable within 60 days of May 23, 1997.
(6) Represents 49,413 shares held by Mr. Gordon, and 195,500 shares subject to
options exercisable within 60 days of May 23, 1997.
(7) Represents 32,479 shares held by Mr. Lewis, and 188,900 shares subject to
options exercisable within 60 days of May 23, 1997.
(8) Represents 4,115 shares held by Mr. Mattrick, and 160,033 shares subject to
options exercisable within 60 days of May 23, 1997.
(9) Represents 120,164 shares held by Mr. Mott, and 29,326 shares subject to
options exercisable within 60 days of May 23, 1997.
(10) Represents 86,204 shares held by Mr. Asher, and 45,076 shares subject to
options exercisable within 60 days of May 23, 1997.
(11) Represents 25,695 shares held by Mr. Byron, and 42,193 shares subject to
options exercisable within 60 days of May 23, 1997.
(12) Represents 28,724 shares subject to options exercisable within 60 days of
May 23, 1997 granted to Mr. Case.
(13) Represents 13,262 shares subject to options exercisable within 60 days of
May 23, 1997 granted to Mr. Kusin.
(14) Includes 1,752,746 shares subject to options exercisable within 60 days of
May 23, 1997 (including the options described in notes (4) through (13)
above).
5
<PAGE> 7
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, 1992, through March 31, 1997,
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.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG
ELECTRONIC ARTS, NASDAQ MARKET INDEX AND H&Q TECHNOLOGY INDEX*
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Electronic Arts Nasdaq - U.S. H&Q Technology
<S> <C> <C> <C>
3/31/92 100.00 100.00 100.00
3/31/93 246.32 114.96 119.32
3/31/94 221.05 124.09 136.72
3/31/95 190.53 138.04 177.37
3/31/96 223.16 187.42 241.39
3/31/97 224.21 208.31 280.57
</TABLE>
* As a result of the removal of the healthcare sector from the H&Q Technology
Index and the addition of a new "Information Services" sector, the overall
portfolio of the H&Q Technology Index has changed significantly. (Source: The
Hambrecht & Quist Indices: Growth, Technology, Healthcare, and Branded
Consumer -- Update Report on March 5, 1997)
6
<PAGE> 8
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, Kusin and Mott,
each a non-employee director received 6,700 options at an exercise price of
$30.00. 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.
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 five highest paid
executive officers of the Company whose salary and bonus in fiscal 1997 exceeded
$100,000 and includes the Chief Executive Officer. This information includes the
dollar values of base salaries, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred. The
Company does not grant SARs to executive officers and has no long term
compensation benefits other than stock options.
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- -------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR SALARY($)(1) BONUS($)(2) ($) OPTIONS(#) ($)(3)
- --------------------------------- ---- ----------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 1997 $ 500,186 $322,013 -- 60,000 $ 594
Chairman and Chief 1996 466,321 14,250 -- 180,000(4) 594
Executive Officer 1995 424,123 168,191 -- 100,000 621
Don A. Mattrick 1997 286,431 209,808 -- 0 --(5)
Executive Vice President, 1996 227,572 152,894 -- 500,000(4) --
North American Studios 1995 167,415 126,104 -- 30,000 --
E. Stanton McKee, Jr. 1997 300,585 186,704 -- 30,000 594
Executive Vice President, 1996 271,335 59,100 -- 60,000(4) 594
Chief Financial and 1995 258,077 96,465 -- 60,000 621
Administrative Officer
William B. Gordon 1997 302,782 163,538 -- 30,000 594
Executive Vice President, 1996 285,936 7,296 -- 60,000(4) 594
Marketing 1995 272,115 95,525 -- 60,000 621
Mark Lewis 1997 281,929 143,418 17,681(6) 35,000 340
Executive Vice President, 1996 243,701 58,100 -- 30,000 297
International 1995 232,207 76,124 75,130(7) 50,000 329
</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
canceled: Probst: 90,000; Mattrick: 250,000; McKee: 30,000; Smith: 30,000;
Gordon: 30,000.
(5) Represents $ relocation expenses and $297 Company paid term life
insurance premiums.
(6) Represents car allowance.
(7) Represents tax equalization payment from Electronic Arts (UK) Ltd.
STOCK OPTIONS
The following table sets forth information regarding individual grants of
options to purchase the Company's common stock during the Company's 1997 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.
8
<PAGE> 10
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION OR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------
GRANTED IN FY1997(1) SHARE DATE 5% 10%
----------- -------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III.... 60,000 2.75% $ 29.875(2) 9/03/06 $1,127,294 $2,856,783
Don Mattrick.............. 0 -- -- -- -- --
E. Stanton McKee, Jr...... 30,000 1.375 29.875(2) 9/03/06 563,647 1,428,392
William B. Gordon......... 30,000 1.375 29.875(2) 9/03/06 563,647 1,428,392
Mark Lewis................ 35,000 1.605 29.875(2) 9/03/06 657,587 1,666,457
</TABLE>
- ---------------
(1) The Company granted 2,180,589 options to employees in fiscal 1997.
(2) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on September 3, 1996 on the Nasdaq
National Market. The options became exercisable as to 6% on September 1,
1996 and thereafter at a rate of 2% per month for the next 47 months.
(3) Based on 53,312,232 shares of the Company's common stock outstanding as of
September 3, 1996 and a closing bid price of common stock that day of
$29.875, the following gains for all stockholders, assuming a ten year term,
would be:
<TABLE>
<CAPTION>
5% STOCK PRICE APPRECIATION 10% STOCK PRICE APPRECIATION
----------------------------- -----------------------------
<S> <C>
1,001,642,315 2,538,358,287
</TABLE>
The following table sets forth certain information concerning the exercise
of stock options during fiscal 1997 by each of the executive officers named in
the Summary Compensation Table above and the number and value at Fiscal Year end
March 27, 1997 of unexercised options held by said individuals.
1997 AGGREGATED OPTION EXERCISES AND MARCH 27, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT MARCH 27, 1997 AT MARCH 27, 1997(2)
SHARES ACQUIRED VALUE(1) --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst
III................. 0 $ 0 601,300 178,700 $11,195,500 $ 759,500
Don A. Mattrick....... 20,000 520,625 137,966 206,034 1,829,898 720,102
E. Stanton McKee,
Jr.................. 0 0 199,500 80,500 2,344,050 428,450
William B. Gordon..... 155,000 4,340,000 177,300 84,700 2,506, 675 415,200
Mark Lewis............ 0 0 173,100 73,900 2,661,000 274,000
</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 27, 1997 ($26.50) less the exercise price of the options.
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 excepting that Mr. Mattrick has a
purchase option for property which is affected by a termination of his
employment by the Company. See "Certain Transactions" below. 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.
9
<PAGE> 11
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 two fiscal years, 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
addition, as many of the Company's competitors are experiencing difficulties in
the current rapidly changing market, key Company executives are recruited for
positions in those companies. During the latter portion of fiscal 1995 and
fiscal 1996, three of the Company's executive officers resigned to work with
small start-up ventures. While no executive officer has resigned during the last
fiscal year, virtually all of the executive officers are currently being
recruited on a regular basis.
In addition, in the last two fiscal years, the Company's stock price has
varied significantly despite what the Compensation Committee believes to be a
positive overall performance by the Company. The Company posted revenue and
earnings gains and increased its market share in key segments in a year in which
the transition to new platforms culminated and many of the Company's competitors
posted losses or lost market share. Thus, at a time when 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 has
declined.
For fiscal year 1997 as in fiscal year 1996, the Compensation Committee's
primary challenge was to identify and implement mechanisms to effectively
compete for and retain 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.
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Accordingly, the Compensation Committee made decisions for fiscal year 1997
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 thereby effectively competing for the continuing
services of the Company's executive officers.
DATA CONSIDERED AND PROCESS USED
The Company's Human Resources Department 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 25 high technology companies with median sales
approximately equal to those of the Company. The factors used to determine the
participants in the survey 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 percentile of the total survey companies
as well as the software companies included in the survey. The Company's
operating profit is at the percentile of the total survey companies and the
software companies included in the survey. In order to ensure use of the
appropriate competitive data for the Executive Vice President International, the
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 because
they compete for executive talent with the Company, notwithstanding that their
lack of inclusion 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 reviewed, 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 1997, executive officers' base salaries were at the approximate
average base salary levels in effect for comparable positions with survey
companies. Three of the five named executives, and two of the other executives,
were promoted during the year, and their salaries increased accordingly.
Increases for the named executive officers were effected in October, 1996 and
constituted an average increase of approximately 11.8 percent (including
promotion increases) over the prior year and increases for all executive
officers (including promotion increases) constituted an average increase of
approximately 10.8 percent of the prior years' base salaries.
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Bonus. The Bonus Plan was established by the Compensation Committee in
October of 1996. 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.
Stock Options. In September 1996 the Committee made stock option grants to
certain executive officers including the CEO. See "Option Grants in Fiscal 1997"
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, annually to provide continuing incentives for continued
employment and occasionally, to achieve equity within a peer group.
1997 annual stock option grants were made by the Compensation Committee as
continuing incentives for continuing employment by the Company. The number of
shares subject to each stock option granted to an executive officer was
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 July 1996 over a 50 month period.
FISCAL YEAR 1997 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
In October 1996 the Compensation Committee adjusted the base salary for Mr.
Probst by approving an increase of approximately 7 percent to the level of base
salary in effect for him for the remainder of the 1997 fiscal year. The base
salary as so adjusted is at the approximate average salary in effect for chief
executive officers at the same companies surveyed for comparative compensation
purposes. The Compensation Committee also established a target bonus for Mr.
Probst under the Bonus Plan for fiscal 1997 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 overall cash compensation
increased approximately 71 percent over the prior fiscal year. Of that increase,
90 percent was a result of increased incentive compensation based solely on the
Company's performance.
In September 1996, the Compensation Committee also made a new stock option
grant to Mr. Probst for 60,000 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 September 1996. 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 of the survey companies in the industry.
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
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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 1997
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 OF CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF STOCK FROM 71,000,000 TO 105,000,000 SHARES AND TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 70,000,000 TO
104,000,000
The Board of Directors of the Company has unanimously determined that it
would be in the best interests of the Company and its stockholders to amend the
Company's Certificate of Incorporation (the "Certificate") To increase the
number of authorized shares of Stock by 34,000,000 shares to a total of
105,000,000 shares consisting of 104,000,000 shares of common stock, par value
$0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per
share. The affirmative vote of a majority of the Company's outstanding shares of
common stock is required for approval of this Proposal. As the Certificate
currently authorizes 1,000,000 Preferred Shares of stock, no change is proposed
in the number of authorized shares of preferred stock.
In each of March 1992 and February 1993, the Board effected a two-for-one
stock split of the outstanding common stock in the form of a stock dividend.
Additionally, on September 25, 1992, the Company issued approximately 2,600,000
(post split) shares of common stock in connection with the acquisition of Origin
Systems, Inc., and in January 1995 issued 1,900,000 shares of common stock in
connection with the acquisition of Bullfrog Productions. As of June 3, 1997
shares of common stock were issued and outstanding, and an
aggregate of shares of common stock remained reserved for future
issuance under the Company's Stock Plans. In addition, the Board has reserved
5,250,000 authorized but unissued shares of common stock for issuance in
connection with unspecified acquisitions and investments. Accordingly, the
Company has issued, or reserved for issuance, substantially all of its
authorized shares of common stock. No shares of preferred stock have been
issued.
The increase in the number of authorized shares of common stock from
70,000,000 shares to 104,000,000 shares would result in additional shares being
available for issuance from time to time in connection with acquisitions and
investments, financings and various other corporate actions. Such availability
will provide the Company with the flexibility to meet business needs and to take
advantage of favorable opportunities as they arise. For example, the interactive
entertainment industry is currently undergoing a period of consolidation. Many
of the other companies in the industry, including both publishers and
developers, are for sale or seeking additional investments. While the Company
currently has no specific plans to acquire or invest in companies for which the
newly authorized
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Common Shares would be necessary, the Board believes that it would be in the
best long term interest of the Company to be able to compete effectively for
such acquisition and investment opportunities by having sufficient shares
available to move quickly where appropriate.
A portion of the additional shares will also be reserved for future
issuance under the Company's employee stock option plans. Pursuant to Proposal
Nos. 3, 4, and 5 described below, and subject to the approval of the
stockholders, an additional 2,350,000 shares of common stock, in the aggregate,
will be reserved under the Company's Stock Plans. The amendments to increase the
number of shares reserved under each of the Company's Directors' Stock Option
Plan and the Company's 1991 Stock Option Plan, which are the subject of Proposal
Nos. 3 and 4, respectively, are contingent upon approval by the stockholders of
Proposal No. 2, as insufficient shares are available for the increases in such
plans without an increase in authorized shares as described herein. Thus, a vote
against Proposal No. 2 may also have the effect of a vote against Proposal Nos.
3 and 4.
The Company does not currently have any other specific plans to issue any
of the additional shares to be authorized. The Company does not intend to seek
further authorization of the stockholders for issuance of the additional shares
unless such stockholder authorization is otherwise required under applicable law
or the rules of the Nasdaq National Market (on which the Company's common stock
is traded), due to the nature and size of the transaction or transactions in
which the shares are to be issued.
If Proposal No. 2 is approved by the stockholders, the Board of Directors
of the Company currently intends to amend the Company's Certificate to increase
the number of authorized shares of common stock as described herein. However,
the Board reserves the right not to amend the Certificate, despite approval by
the stockholders, if the Board determines that such action is not in the best
interests of the Company and its stockholders.
If Proposal No. 2 is approved by the stockholders and the Board of
Directors proceeds to amend the Company's Certificate as described herein, the
first paragraph of Article 4 of the Certificate will be amended to read in full
as follows, and such amendment will be filed with the Secretary of State of the
State of Delaware.
"The total number of shares of stock of all classes that the Corporation
has authority to issue is 105,000,000 shares, consisting of 104,000,000
shares of Common Stock, par value $0.01 per share, and 1,000,000 shares
of Preferred Stock, par value $0.01 per share."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT OF THE
CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO
DIRECTORS' STOCK OPTION PLAN
At the Meeting, Stockholders will be asked to approve the amendment of the
Company's Directors' Stock Option Plan (the "Directors' Plan") to increase the
number of shares of the Company's common stock reserved for issuance under such
Plan by 50,000 shares from 600,000 shares to a total of 650,000 shares. The
Board approved this amendment on May 27, 1997, subject to stockholder approval
of both this amendment and the proposed increase in authorized shares described
in Proposal No. 2. Thus, this amendment to the Directors' Plan will become
effective only upon approval by the stockholders of both Proposal No. 3 and
Proposal No. 2. The Directors' Plan is described in detail in "Stock Option
Plans" below. Since each Director is eligible to receive options under the
Directors' Plan, each such Director has a personal interest in these proposed
amendments to the Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
DIRECTORS' PLAN.
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PROPOSAL NO. 4 -- 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 2,200,000 shares from 10,800,000 shares to a total of 13,000,000 shares. The
Board approved this amendment on May 27, 1997, subject to stockholder approval
of both this amendment and the proposed increase in authorized shares described
in Proposal No. 2. Thus, this amendment to the 1991 Plan will become effective
only upon approval by the stockholders of both Proposal No. 4 and Proposal No.
2. The 1991 Plan is described in detail in "Stock Option Plans" 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.
PROPOSAL NO. 5 -- 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 100,000 shares from a total of 1,050,000 shares to a total of
1,150,000 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 approved the Amendment
on May 27, 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
PURCHASE PLAN.
STOCK OPTION PLANS
History. The Company's 1991 Stock Option 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.
The Directors' Plan was adopted by the Company's Board of Directors on
December 7, 1988 and was approved by the Company's Stockholders on July 28,
1989. The Directors Plan and the 1991 Plan are collectively referred to herein
as the "Plans." The following discussion describes the terms of both Plans,
which are substantially similar. Any material differences among the Plans are
noted below. 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.
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Set forth below is a summary of the principal features of the Plans, which
summary is qualified in its entirety by reference to the terms and conditions of
the Plans. 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 (1) business day of receipt of such request, copies of the
Plan(s) requested. 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 six times 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 Directors' Plan was most recently amended in July of 1991 to increase
the number of shares reserved for issuance thereunder and in March 1993 to
conform to regulatory changes.
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.
The Directors' Plan may be administered by the Board or the Board may appoint a
committee of not less than three (3) members of the Board to administer that
Plan. Currently, the Plans are administered by the members of 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 Plans 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 Plans 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, although the
Company's practice over the last several years has been to make grants under the
Plan only to employees of the Company and its subsidiaries and affiliates.
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 23, 1997,
approximately 1,740 employees, including nine 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.
Only Directors of the Company who are not also employees are eligible to
receive option grants under the Directors' Plan. Directors are also limited in
the number of shares that may be issued to them pursuant to options granted
under the Directors' Plan., (See "Compensation of Directors").
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Terms of the Options and the Plans. Options may be granted under the 1991
Plan until April 25, 2001 and under the Directors' Plan until December 7, 1998.
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. Options granted under the Directors' Plan
after March 12, 1991 vest 2% at the date of grant and at the rate of 2% per
month from the date of grant.
The Committee determines the exercise price of each option granted under
the Plans. 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 23, 1997, 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
$30.50.
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 Plans as currently in effect, payment may be made in cash or
by other specified forms of payment.
Termination of Options. Under the Plans, 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 Plans. 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 Plans 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
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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.
Under the Directors' Plan the vesting of all outstanding options will
accelerate as a result of the same events as set forth for the 1991 Plan, except
that such acceleration of vesting will take place regardless of whether any
successor corporation agrees to assume the options or substitute substantially
equivalent options. Such acceleration will be immediate and automatic and
require no further approvals of the Board or stockholders.
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 Plans. The Committee may amend or
terminate the 1991 Plan or the Directors' 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.
If an option granted pursuant to the 1991 Plan or the Directors' 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 respective Plans.
Outstanding Options Under the 1991 Plan. As of May 23, 1997, 2,787,890
shares had been issued pursuant to exercises under the 1991 Plan by the
Company's optionees, 1,547 persons held NQSOs under the 1991 Plan to purchase an
aggregate of 7,739,665 shares of common stock, with a weighted
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<PAGE> 20
average exercise price of $22.91 per share and there were 272,445 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, 545,000 shares;
Don A. Mattrick, 780,000 shares; E. Stanton McKee, Jr., 315,000 shares; William
B. Gordon, 270,000 shares; and Mark Lewis, 205,000 shares. Current executive
officers as a group have been granted options to purchase 2,696,500 shares, and
all employees as a group, other than executive officers, have been granted
options to purchase 12,811,785 shares. The outstanding options under the 1991
Plan expire from July 25, 2001 to May 1, 2007 (subject to earlier termination if
an Optionee's association with the Company terminates). An aggregate of
10,800,000 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.
Outstanding Options Under the Directors' Plan. As of May 23, 1997, 264,120
shares had been issued pursuant to exercises under the Directors' Plan by the
Company's optionees, 5 persons held NQSOs under the Directors' Plan to purchase
an aggregate of 220,767 shares of common stock, with a weighted average exercise
price of $27.90 per share and there were 115,113 shares of common stock
available for future grants under the Directors' Plan. Over the term of the
Directors' Plan, the following Directors have been granted options to purchase
shares of common stock under the Directors' Plan as follows: M. Richard Asher,
82,868 shares; William J. Byron, 106,199 shares; Daniel H. Case III, 43,100
shares; Gary M. Kusin, 30,700 shares; and Timothy Mott, 80,000 shares. The
outstanding options under the Directors' Plan expire from January 29, 1998 to
July 31, 2006 (subject to earlier termination if an Optionee's association with
the Company terminates). An aggregate of 600,000 shares of the Company's
authorized common stock has been reserved for issuance upon the exercise of
options to be granted under the Directors' Plan.
Proposed Amendments. At the Meeting, stockholders will be asked to approve
an amendment to the 1991 Plan increasing the number of shares issuable
thereunder by 2,200,000 shares from 10,800,000 shares to 13,000,000 shares.
Under the proposed amendment to the Directors' Plan the number of shares
authorized for issuance will be increased by 50,000 shares from 600,000 shares
to 650,000 shares. No options have to date been granted on the basis of such
proposed share increase. If the proposed amendments are not approved, or if
Proposal No. 2 is not approved, the share increases will not be implemented.
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 four times (July 1992, July 1993, July 1994 and August 1995) 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. All numbers 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.
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 (1) 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
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<PAGE> 21
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 May 23, 1997, approximately 1,800
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 or lower the
rate of payroll deductions for any subsequent Offering 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 May 23, 1997, the closing bid price
of the Company's common stock was $30.50.
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<PAGE> 22
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 Offering Period at any time
at least 15 days prior to the end of an Offering Period. 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, is
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 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 the 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.
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<PAGE> 23
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 (9 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
---------------------------------------------------
8/31/96 THROUGH
2/29/96 THROUGH 8/30/96 2/27/97
------------------------ ----------------------
NAME OF INDIVIDUAL PURCHASE NUMBER PURCHASE NUMBER
OR NUMBER IN GROUP PRICE(1) OF SHARES PRICE(1) OF SHARES
- ------------------------------------------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Lawrence F. Probst III.......................... $21.25 200 $21.25 916
Don A. Mattrick................................. 0 0 0 0
E. Stanton McKee................................ 0 0 21.25 1,000
William B. Gordon............................... 0 0 21.25 1,000
Mark Lewis...................................... 21.25 503 21.25 607
Executive officers as a group (9 persons)....... 21.25 1,669 21.25 5,011
</TABLE>
- ---------------
(1) Purchase price depends on the specific purchase period (as defined in the
Purchase Plan) in which an individual is enrolled.
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 100,000 shares from 1,050,000 shares to
1,150,000 shares.
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<PAGE> 24
CERTAIN TRANSACTIONS
From April 1, 1996 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, and except as follows:
By Lease Agreement between the Company and Don A. Mattrick, Executive Vice
President of the Company ("Mr. Mattrick") dated October 16, 1996 (the "Lease")
in connection with Mr. Mattrick's relocation to California from Canada, the
Company leased a residence (the "Property") to Mr. Mattrick in Woodside,
California. The Lease is for a three year term (the "Term") and provides for
monthly payments of $7500 by Mr. Mattrick to the Company. Mr. Mattrick is
responsible for all maintenance, and the Company is responsible for taxes and
insurance for the Property. Mr. Mattrick has an option to purchase the Property
(i) at the Company's acquisition cost plus the costs of improvements made by the
Company ("Cost") if Mr. Mattrick is terminated without cause during the Term, or
(ii) at the greater of the average of three independent appraisals or Cost if
Mr. Mattrick resigns or is terminated without cause during the Term.
PROPOSAL NO. 6 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed KMPG 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 from
fiscal 1987 through fiscal 1997. 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 1998 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's 1998 Annual Meeting of stockholders must
be received by the Company by March 30, 1998.
22
<PAGE> 25
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 27, 1997.
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
/s/ LAWRENCE F. PROBST III
--------------------------------
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.
23
<PAGE> 26
[ELECTRONIC ARTS LOGO]
<PAGE> 27
P
R
O
X
Y
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ELECTRONIC ARTS INC.
PROXY FOR 1997 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 1997 Annual
Meeting of Stockholders of the Company to be held at the Company
headquarters, 1450 Fashion Island Boulevard, San Mateo, California on
July 31, 1997, 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:
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 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 CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
SHARES OF COMMON STOCK
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT TO DIRECTORS' STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMENDMENT TO 1991 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR ELECTION
AND FOR PROPOSALS 2 THROUGH 6.
(Continued and to be executed on reverse side)
<PAGE> 28
(Continued from other side)
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
THROUGH 6. 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 1997 Annual
Meeting of Stockholders of the Company; (b) the accompany Proxy Statement; and
(c) the Annual Report to Stockholders for the year ended March 31, 1997.
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: , 1997
