<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>
[ ] 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 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
ELECTRONIC ARTS LOGO
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 1998 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 30, 1998 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 adoption of the Company's 1998 Directors' Stock Option
Plan and to reserve 135,000 shares of the Company's Common Stock for
issuance thereunder.
3. 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 2,500,000 shares from 13,000,000 shares to a
total of 15,500,000 shares and to prohibit option grants to non-employees.
4. 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 1,150,000
shares to a total of 1,250,000 shares.
5. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
6. 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 2, 1998 are
entitled to notice of and to vote at the Meeting and any adjournment thereof.
By Order of the Board
of Directors
/s/ LAWRENCE F. PROBST III
Lawrence F. Probst III
Chairman and Chief Executive Officer
San Mateo, California
June 26, 1998
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
ELECTRONIC ARTS LOGO
------------------------------------
PROXY STATEMENT
------------------------------------
JUNE 26, 1998
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
1998 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 30, 1998 at 2:00 p.m. (the "Meeting"). Only stockholders of
record of the Company's common stock at the close of business on June 2, 1998
will be entitled to vote. At the close of business on that date, the Company had
60,368,296 shares of common stock outstanding and entitled to vote. A majority,
or 30,184,149 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 26, 1998. 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, Georgeson & Company Inc. to aid it in the solicitation
process. The Company anticipates costs to be approximately $9,000 plus out of
pocket expenses. 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) 66 Consultant 1984
William J. Byron(2) 65 Self-employed 1989
Daniel H. Case III(2) 41 Chairman of the Board and Chief Executive 1993
Officer, Hambrecht & Quist Group and
Hambrecht & Quist LLC
Gary M. Kusin 47 Chairman, Kusin Gurwitch Cosmetics, LLC 1995
Timothy Mott(1)(3) 49 Partner, Ironwood Capital 1990
Lawrence F. Probst III(3) 48 Chairman and Chief Executive Officer of the 1991
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 July 1985 through July 1988, he was President of Sanyo Electric
Consumer Products Division, 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 Chairman of the Board 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 AMB Property Corp., The Bay Area
Council, Hambrecht & Quist Group, Rational Software Corporation, The Securities
Industry Association and the Technology Network and serves on the executive
committee of AMB Property Corp and the Technology Network, and serves 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. 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
2
<PAGE> 5
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 1998 fiscal year, the Board of Directors met three
times, held three meetings by teleconference and approved four Actions by
Written Consent, the Compensation Committee met once, held 2 meetings by
teleconference and approved 13 Actions by Written Consent, the Audit Committee
met two times and the Nominating Committee met once. In fiscal 1998, no
incumbent Director attended fewer than 95% 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> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 22, 1998,
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>
Montag & Caldwell, Inc.(2) 7,426,104 12.3%
3343 Peachtree Road
1100 Atlanta Financial Center
Atlanta, GA 30326-1450
Putnam Investment Management Company(3) 6,706,291 11.1%
One Post Office Square
Boston, Massachusetts 02109
Lawrence F. Probst III(4) 727,406 1.2%
E. Stanton McKee, Jr.(5) 361,450 *
Don A. Mattrick(6) 173,348 *
Timothy Mott(7) 131,522 *
M. Richard Asher(8) 118,723 *
Nancy Smith(9) 76,290 *
William J. Byron(10) 74,470 *
Daniel H. Case III(11) 37,408 *
Gary M. Kusin(12) 14,190 *
All executive officers and Directors as a group
(14 persons)(13) 2,372,742 3.9%
</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) The number of shares shown to be beneficially owned was confirmed by Montag
& Caldwell, Inc. on May 26, 1998.
(3) 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. The number of
shares shown to be beneficially owned by Putnam Investment Management
Company is based on confirmation from Putnam dated May 26, 1998 and its
Schedule 13G dated January 16, 1998.
(4) Represents 4,406 shares held by Mr. Probst, and 723,000 shares subject to
options exercisable within 60 days of May 22, 1998.
(5) Represents 139,650 shares held by Mr. McKee, and 221,800 shares subject to
options exercisable within 60 days of May 22, 1998. (footnotes continued on
next page)
(6) Represents 4,115 shares held by Mr. Mattrick, and 169,233 shares subject to
options exercisable within 60 days of May 22, 1998.
(7) Represents 95,164 shares held by Mr. Mott, and 36,358 shares subject to
options exercisable within 60 days of May 22, 1998.
(8) Represents 86,204 shares held by Mr. Asher, and 32,519 shares subject to
options exercisable within 60 days of May 22, 1998.
(9) Represents 1,490 shares held by Ms. Smith, and 74,800 shares subject to
options exercisable within 60 days of May 22, 1998.
(10) Represents 25,245 shares held by Mr. Byron, and 49,225 shares subject to
options exercisable within 60 days of May 22, 1998.
(11) Represents 37,408 shares subject to options exercisable within 60 days of
May 22, 1998 granted to Mr. Case.
(12) Represents 14,190 shares subject to options exercisable within 60 days of
May 22, 1998 granted to Mr. Kusin.
(13) Includes 1,884,833 shares subject to options exercisable within 60 days of
May 22, 1998 (including the options described in notes (4) through (12)
above).
4
<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, 1993, through March 31, 1998,
with the total cumulative return of the Nasdaq Market Composite 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 H&Q TECHNOLOGY NASDAQ COMPOSITE
<S> <C> <C> <C>
3/31/93 100 100 100
3/31/94 90 114 108
3/31/95 77 150 118
3/31/96 91 204 160
3/31/97 91 235 176
3/31/98 160 350 265
</TABLE>
5
<PAGE> 8
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee Directors receive an annual retainer of $16,000, and a fee of
$1,200 and $950 per meeting and telephone meeting attended, respectively.
Committee members receive a fee of $1,000 and $750 per Committee meeting and
telephone meeting attended, respectively. 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. Each non-employee Director also participates in the
Directors' Stock Option Plan.
Under the current Directors' Stock Option Plan, 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 bid price of the Company's common
stock on the date of election or appointment, rounded to the nearest 1,000
shares. 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 bid 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.
Under the proposed 1998 Directors' Plan, each non-employee Director will
receive an option to purchase 25,000 shares of the Company's common stock upon
initial election or appointment to the Board of Directors, and an option to
purchase 8,000 shares upon re-election to the Board of Directors. The 1998
Directors' Stock Option Plan is described in detail in "Stock Option Plans"
below. Additionally, under the proposed 1998 Directors' Plan, non-employee
Directors may also elect to receive all or part of their cash compensation in
the Company's common stock. On May 13, 1998, the Board also adopted Board Stock
Ownership Guidelines whereby each non-employee Director is required to own
shares of the Company's common stock having a value of not less than three years
annual retainer. A three year period is provided to meet this objective.
At the last annual meeting, Messrs. Asher, Byron, Case, Kusin and Mott,
each a non-employee Director, received 6,000 options at an exercise price of
$33.4375. 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.
6
<PAGE> 9
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 1998 exceeded
$100,000 and includes the Chief Executive Officer. This information includes the
dollar values of base salaries, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred. The
Company does not grant SARs to executive officers and has no long term
compensation benefits other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------------------------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) COMPENSATION($) OPTIONS(#) COMPENSATION($)(3)
--------------------------- ---- ------------ ----------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 1998 $537,616 $408,400 -- 250,000 $ 594
Chairman and Chief 1997 500,186 322,013 -- 60,000 594
Executive Officer 1996 466,321 14,250 -- 180,000(4) 594
John Riccitiello 1998 184,731 446,890(5) -- 300,000 209,929(6)
President and Chief Operating
Officer
E. Stanton McKee, Jr. 1998 340,443 243,103 -- 150,000 594
Executive Vice President, 1997 300,585 186,704 -- 30,000 594
Chief Financial and 1996 271,335 59,100 -- 60,000(4) 594
Administrative Officer
Don A. Mattrick 1998 316,194 283,522 -- 150,000 41,361(7)
President, Worldwide 1997 286,431 209,808 -- 0 110,146(8)
Studios 1996 227,572 152,894 -- 500,000(4) --
Nancy L. Smith 1998 300,140 230,361 -- 105,000 593
Executive Vice President and 1997 262,453 160,123 -- 30,000 594
General Manager of North 1996 235,684 57,551 -- 60,000(4) 591
American Publishing
</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; McKee: 30,000; Mattrick:
250,000; Smith: 30,000; and 9/27/95 grants that were canceled: Probst:
90,000; McKee: 30,000; Mattrick: 250,000; Smith: 30,000.
(5) Mr. Riccitiello joined the Company during the fiscal year and received a
$250,000 one time signing bonus.
(6) Represents $209,582 relocation expenses and $347 Company paid term life
insurance premiums.
(7) Represents $41,064 relocation expenses and $297 Company paid term life
insurance premiums.
(8) Represents $109,849 relocation expenses and $297 Company paid term life
insurance premiums.
7
<PAGE> 10
STOCK OPTIONS
The following table sets forth information regarding individual grants of
options to purchase the Company's common stock during the Company's 1998 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 1998
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZED VALUE AT
TOTAL ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(6)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
OPTIONS GRANTED FY1998(1) SHARE DATE 5% 10%
--------------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 75,000 1.973% $24.625(2) 05/01/07 1,161,490 2,943,443
175,000 4.604 35.000(3) 09/25/07 3,851,980 9,761,673
John Riccitiello 300,000 7.892 $36.750(4) 10/13/07 6,933,563 17,571,011
Don Mattrick 50,000 1.315 $24.625(2) 05/01/07 774,327 1,962,295
100,000 2.631 35.000(3) 09/25/07 2,201,131 5,578,099
E. Stanton McKee, Jr. 45,000 1.184 $24.625(2) 05/01/07 696,894 1,766,066
105,000 2.762 35.000(3) 09/25/07 2,311,188 5,857,004
Nancy L. Smith 30,000 .789 $24.625(2) 05/01/07 464,596 1,177,377
25,000 .658 35.000(3) 09/25/07 550,283 1,394,525
50,000 1.315 45.500(5) 03/27/08 1,430,735 3,625,764
</TABLE>
- ---------------
(1) The Company granted 3,801,289 options to employees in fiscal 1998.
(2) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on May 1, 1997 on the Nasdaq National
Market. The options became exercisable as to 6% on July 1, 1997 and
thereafter at a rate of 2% per month for the next 47 months.
(3) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on September 25, 1997 on the Nasdaq
National Market. For Ms. Smith, the options became exercisable as to 6% on
November 1, 1997 and thereafter at a rate of 2% per month for the next 47
months. For Messrs. Probst, Mattrick and McKee, the options will vest and
become exercisable 25% after year three, 50% after year four and 100% after
year five.
(4) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on October 13, 1997 on the Nasdaq
National Market. 50% of the option will become exercisable as to 24% on
September 1, 1998 and thereafter at a rate of 2% per month for the next 26
months. The remaining 50% will vest and become first exercisable as to 100%
on September 25, 2002.
(5) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on March 27, 1998 on the Nasdaq National
Market. The options will vest and become exercisable 50% after year two; 75%
after year three and 100% after year four.
(6) (i) Based on 54,175,603 shares of the Company's common stock outstanding as
of May 1, 1997 and a closing bid price of common stock that day of $24.625,
and (ii) Based on 58,656,051 shares of the Company's common stock
outstanding as of September 25, 1997 and a closing bid price of common stock
that day of $35.00, and (iii) Based on 58,855,854 shares of the Company's
common stock outstanding as of October 13, 1997 and a closing bid price of
common stock that day of $36.75, and (iv) Based on 60,090,210 shares of the
Company's common stock outstanding as of March 27, 1998 and a closing bid
price of common stock that day of $45.50, the following gains for all
stockholders, assuming a ten year term, would be:
<TABLE>
<CAPTION>
5% STOCK PRICE APPRECIATION 10% STOCK PRICE APPRECIATION
--------------------------- ----------------------------
<C> <S> <C>
(i) 838,985,939 2,126,114,090
(ii) 1,291,087,137 3,271,805,197
(iii) 1,360,259,282 3,447,097,614
(iv) 1,719,451,014 4,357,342,429
</TABLE>
8
<PAGE> 11
The following table sets forth certain information concerning the exercise
of stock options during fiscal 1998 by each of the executive officers named in
the Summary Compensation Table above and the number and value at the fiscal year
ended March 27, 1998 of unexercised options held by said individuals.
1998 AGGREGATED OPTION EXERCISES AND MARCH 27, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT MARCH 27, 1998 AT MARCH 27, 1998(2)
SHARES ACQUIRED --------------------------- ---------------------------
ON EXERCISE VALUE(1) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 694,200 335,800 $24,572,563 $5,146,813
John Riccitiello 18,000 282,000 157,500 2,467,500
Don Mattrick 60,000 $2,002,767 146,166 287,834 3,549,402 5,168,473
E. Stanton McKee, Jr. 249,000 181,000 7,299,038 2,684,088
Nancy L. Smith 60,800 136,800 1,395,100 1,548,100
</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, 1998 ($45.50) 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 other 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, except as described in
this section. 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. Mr. Riccitiello's
employment agreement provides that if his employment by the Company had been
terminated without cause prior to March 31, 1998, he would have received three
years salary, and if it terminates without cause before March 31, 1999 or March
31, 2000, he will receive two or one years salary, respectively. In addition,
Mr. Riccitiello has a purchase option for property which is affected by a
termination of his employment by the Company. See "Certain Transactions" below.
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").
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<PAGE> 12
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. Compensation planning
for fiscal year 1998 was designed to address two additional factors, the
recruiting of the Company's executives by others, and the need for the Company
to recruit additional management staff.
In the last fiscal year, recruiting efforts aimed at the Company's
executive officers continued, as they had in prior years. As the industry
consolidates, seasoned executives with larger company management experience are
recruited intensely, again placing pressure on the Company's ability to retain
its key executives. Small start-up companies such as those proliferating in the
online business areas offer significant potential equity gains which are
difficult for more mature companies like the Company to match without
significant shareholder dilution. Moreover, as the Company has recruited
additional senior management staff during fiscal 1998 to obtain added management
depth and experience in consumer mass markets, it has looked outside its
industry to other consumer products businesses for executives with larger
companies. Other consumer products industries have different compensation
strategies, including often higher cash compensation, than does the Company.
Those compensation issues have to be successfully addressed to recruit such
talent while maintaining parity with compensation of current key executives.
For fiscal year 1998, the Compensation Committee's primary challenge was to
identify and implement mechanisms to effectively compete for executive talent
from these other consumer industries, while retaining its long term key
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. In fiscal 1997 and 1998, unlike late fiscal 1995
and fiscal 1996, no executive officers left the Company, and the Company
successfully recruited John Riccitiello as President and Chief Operating Officer
as well as other executives from other consumer products industries.
The performance of the Company's stock during fiscal 1998 significantly
assisted in meeting these challenges. In fiscal 1996 and 1997, even though the
Company's performance exceeded its competitors, variations in the Company's
stock price decreased the value of executives' equity compensation. In the last
fiscal year, the stock performance provided real incentives both for retaining
and recruiting executives.
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 29 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 was at the 55th percentile of the total survey companies
and at the 59th percentile of the software companies included in the survey. The
Company's operating profit is at the 46th percentile of the total survey
companies and at the 64th percentile of the software companies included in the
survey.
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
10
<PAGE> 13
by the Company because they compete for executive talent with the Company,
notwithstanding 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 1998, executive officers' base salaries were at the approximate
average base salary levels in effect for comparable positions with survey
companies. One of the five named executives, and one of the other executives,
were promoted during the year, and their salaries increased accordingly.
Increases for the named executive officers were effected in October, 1997 and
constituted an average increase of approximately 8.9 percent (including
promotion increases) over the prior year and increases for all executive
officers (including promotion increases) constituted an average increase of
approximately 13.2 percent of the prior years' base salaries.
Bonus. The Bonus Plan was adopted by the Compensation Committee in October
of 1997. 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 two (2) parts, one part based on the Company's
financial performance for the fiscal year and one part discretionary based on
the executive's job performance. In prior years bonus criteria included segments
based on quarterly financial performance as well. However, the Compensation
Committee modified the Plan to eliminate quarterly criteria and to limit bonus
incentives based on financial performance to longer term annual results.
Stock Options. In May 1997 and September 1997 the Committee made stock
option grants to certain executive officers including the CEO. See "Option
Grants in Fiscal 1998" 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. Mr. Riccitiello received a grant in October 1997 when he accepted
the position of President and Chief Operating Officer and Ms. Smith received a
grant in March 1998 when she was promoted to General Manager of North American
Publishing.
1998 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 as described in the "Option Grants in Fiscal 1998" above.
FISCAL YEAR 1998 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
In October 1997 the Compensation Committee adjusted the base salary for Mr.
Probst by approving an increase of approximately 4.8% percent to the level of
base salary effective until the next raise cycle, October 1998. The base salary
as so adjusted is at the approximate average salary in effect for chief
executive officers at
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<PAGE> 14
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 1998 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 fiscal year earnings.
Mr. Probst's overall cash compensation increased approximately 14.8% percent
over the prior fiscal year. Of that increase, seventy-one percent (71%) was a
result of increased incentive compensation based solely on the Company's
performance.
In May 1997 the Compensation Committee also approved a new stock option
grant to Mr. Probst for 75,000 shares and in September 1997 approved a stock
option grant for 175,000 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 May and September 1997, respectively. The grants reflect 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 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 1998
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
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<PAGE> 15
PROPOSAL NO. 2 -- ADOPTION OF THE 1998
DIRECTORS' STOCK OPTION PLAN
At the Meeting, Stockholders will be asked to adopt the Company's 1998
Directors' Stock Option Plan (the "1998 Directors' Plan") and to reserve 135,000
shares of the Company's Common Stock for issuance thereunder. The Board approved
the 1998 Directors' Plan on May 13, 1998, subject to stockholder approval. The
1998 Directors' Plan is described in detail in "Stock Option Plans" below. If
the 1998 Directors' Plan is approved, the current Directors' Plan will be
retired and no further grants will be made under such Plan. Since each Director
is eligible to receive options under the 1998 Directors' Plan, each such
Director has a personal interest in the adoption of the 1998 Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR TO ADOPT THE 1998
DIRECTORS' STOCK OPTION PLAN.
PROPOSAL NO. 3 -- 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 2,500,000 shares from 13,000,000 shares to a total of 15,500,000 shares and
to prohibit contractors and non-employee advisors from being eligible to receive
grants under the 1991 Plan. The Board approved this amendment on May 13, 1998,
subject to stockholder approval. 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. 4 -- 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 1,150,000 shares to a total of
1,250,000 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 13, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
PURCHASE PLAN.
STOCK OPTION PLANS
The 1991 Stock Option Plan
History. The Company's 1991 Stock Option Plan (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.
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<PAGE> 16
The following discussion describes the terms of the 1991 Plan. 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 by first class mail within one (1) business day of receipt of
such request, a copy of the 1991 Plan 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 (650)
571-7171.
Recent Amendments. The 1991 Plan has been amended seven 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.
Purpose. The purpose of the 1991 Plan is to provide equity incentives to
assist the Company in recruiting and retaining qualified officers, employees,
and Directors who are employees of the Company, 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,
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. Under the current 1991 Plan, non-employee independent
contractors, consultants and other advisors of the Company are eligible to
receive option grants, as well as all officers, employees, and Directors who are
employees of the Company or any parent, subsidiary, or affiliate of the Company.
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, stockholders will be asked to approve the amendment of the Company's
1991 Plan to exclude option grants to non-employees. 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 22, 1998, approximately 2116
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 nonstatutory options ("NSO") 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 NSOs
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
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<PAGE> 17
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 22, 1998, the fair market value of the Company's common stock (as
determined by the closing bid price on the Nasdaq National Market on such date)
was $44.875.
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 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 a Change of Control, 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. In general, a "Change of Control" means a
dissolution or liquidation of the Company, a merger in which the Company is not
the surviving corporation (with certain exceptions), or the sale of all, or
substantially all, of the assets of the Company. 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 NSOs.
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
15
<PAGE> 18
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.
NSOs. The optionee will not recognize any taxable income at the time a NSO
is granted. However, upon exercise of a NSO, 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 NSO. 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 a NSO 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.
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
respective Plans.
Outstanding Options Under the 1991 Plan. As of May 22, 1998, 4,234,128
shares had been issued pursuant to exercises under the 1991 Plan by the
Company's optionees, 1,900 persons held NSOs under the 1991 Plan to purchase an
aggregate of 8,691,583 shares of common stock, with a weighted average exercise
price of $27.67 per share and there were 74,289 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, 720,000 shares; John Riccitiello, 300,000
shares; E. Stanton McKee, Jr., 420,000 shares; Don Mattrick, 88,000 shares; and
Nancy Smith, 300,000 shares. Current executive officers as a group have been
granted options to purchase 3,396,500 shares, and all employees as a group,
other than executive officers, have been granted options to purchase 14,879,920
shares. The outstanding options under the 1991 Plan expire from July 25, 2001 to
May 20, 2008 (subject to earlier termination if an Optionee's association with
the Company terminates). An aggregate of 13,000,000 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 2,500,000 shares from 13,000,000 shares to 15,500,000 shares and
to exclude option grants to non-employees. No options have to date been granted
on the basis of such proposed share increase.
THE 1998 DIRECTORS' STOCK OPTION PLAN
History. The Company's 1998 Directors' Stock Plan was adopted by the Board
on May 13, 1998. The following discussion describes the terms of the 1998
Directors' Plan. Set forth below is a summary of the principal features of the
1998 Directors' Plan, which summary is qualified in its entirety by reference to
the terms and conditions of the 1998 Directors' 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 1998 Directors' Plan
requested. Any such
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<PAGE> 19
request should be directed as follows: Stock Administration Department,
Electronic Arts Inc., 1450 Fashion Island Boulevard, San Mateo, California
94404; telephone number (650) 571-7171.
Purpose. The purpose of the 1998 Directors' Plan is to provide equity
incentives for members of the Board of Directors of the Company who are not
employees of the Company, to promote the financial success and progress of the
Company by granting to such persons options to purchase Shares of the Company,
and to provide the opportunity for such persons to receive Shares of common
stock of the Company in lieu of cash compensation.
Administration. The 1998 Directors' Plan provides that it 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 the 1998 Directors' Plan. The
interpretation by the Board of any of the provisions of the 1998 Directors' Plan
or any Option granted under the 1998 Directors' Plan shall be final and binding
upon the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
The members of the Compensation Committee receive no compensation for
administering the 1998 Directors' 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 1998
Directors' Plan and has agreed to indemnify members of the Committee in
connection with their administration of the 1998 Directors' Plan.
Eligibility and Award Formula. Options may be granted only to such
Directors of the Company who are not employees of the Company in accordance with
the following formula:
a. Upon initial election or appointment to the Board of Directors,
each non-employee Director shall be granted an option to purchase 25,000
shares of the Company's common stock on the date of election or
appointment.
b. Upon re-election to the Board of Directors at the annual meeting of
stockholders of the Company, each non-employee Director shall be granted an
option to purchase 8,000 shares of the Company's common stock on the date
of re-election; provided, however, that any such Director who received such
Director's initial grant pursuant to (a) above since the last annual
meeting of stockholders shall receive a prorated annual grant to purchase a
number of shares determined as set forth above and multiplied by a fraction
whose numerator is the number of calendar months or portions thereof that
the Director has served since the date of the initial grant and whose
denominator is twelve. The provisions of this Section shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code of 1986, as amended (the "Code") or the rules
thereunder.
Terms of the Options and the 1998 Directors' Plan. If approved, the term of
the 1998 Directors' Plan will be 10 years from the date it is adopted. Options
granted under the 1998 Directors' Plan will vest 2% at the date of grant and at
the rate of 2% per month from the date of grant. Options granted under the 1998
Directors' Plan must be exercised within ten years of the option grant date. To
exercise an option, the Director must deliver to the Company an executed
exercise notice and full payment for the shares being purchased. Payment for
Options under the 1998 Directors' Plan may be made in cash or by other specified
forms of payment.
The Committee determines the exercise price of each option granted under
the 1998 Directors' Plan. The exercise price of any Option shall be not less
than 100% of the fair market value per share of the Company's common stock on
the date the Option is granted. Fair market value shall be the closing bid price
on the Nasdaq National Market. On May 22, 1998, the fair market value of the
Company's common stock (as determined by the closing bid price on the Nasdaq
National Market on such date) was $44.875.
Termination of Options. Under the 1998 Directors' Plan, if a Director
ceases to be a Director of the Company for any reason except death or
disability, any outstanding options to the extent (and only to the extent) that
they would have been exercisable upon the date of termination, may be exercised
by the Director within three (3) months after the date of termination, but in
any event no later than the expiration date of the Option. A longer exercise
period may apply in the event of termination of a Director's association with
the Company because of the Director's death or disability.
17
<PAGE> 20
If an option granted pursuant to the 1998 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 1998 Directors' Plan.
Deferral of Regular Cash Compensation into Common Stock of the
Company. Each Director may elect to reduce all or part of the cash compensation
otherwise payable for services to be rendered by him as a Director (including
the annual retainer and any fees payable for serving on the Board or a Committee
of the Board) and to receive in lieu thereof common stock of the Company. Any
such election shall be in writing and must be made before the services are
rendered giving rise to such compensation, and may not be revoked or changed
thereafter during the Director's term. On such election, the cash compensation
otherwise payable will be increased by 10% for purposes of determining the
number of Shares to be credited to such Director.
If the Director so elects to defer, there shall be credited to such
Director a number of Shares equal to the amount of the deferral (increased by
10% as described in the preceding sentence) divided by the fair market value as
determined by the closing bid price on the Nasdaq National Market on the day in
which the compensation would have been paid in the absence of a deferral
election.
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 1998 Directors' 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 1998 Directors' 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.
Acceleration in Connection with a Change of Control. Upon a Change in
Control (as defined below) of the Company, all options theretofore granted and
not previously exercisable shall become fully exercisable to the same extent and
in the same manner as if they had become exercisable by passage of time in
accordance with the provisions of the 1998 Directors' Plan relating to periods
of exercisability. In general, a "Change of Control" will be deemed to have
occurred upon the acquisition of more than 20% of the then outstanding shares of
the Company's common stock, certain mergers or corporate transactions in which
the Company is not the surviving entity, or a dissolution or liquidation of the
Company or a sale of substantially all of the Company's assets.
Federal Tax Consequences-Nonstatutory Options. The Director will not
recognize any taxable income at the time a NSO is granted. However, upon
exercise of a NSO, 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 NSO, will be treated as ordinary income by the Director.
Upon resale of the shares by the Director, 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 NSO by an optionee to the extent that the
optionee recognizes ordinary income.
Amendment and Termination of the 1998 Directors' Plan. The Committee may
amend or terminate the 1998 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 1998
Directors' Plan may adversely affect any outstanding option or unexercised
portion thereof without the Director's written consent.
18
<PAGE> 21
New Plan Benefits Table. The following table shows in the aggregate the
annual options that will be granted to outside Directors under the 1998
Directors' Plan if the stockholders approve the 1998 Directors' Plan. Since all
current outside Directors are incumbent Directors, no outside Director who is
elected at the Meeting will receive an initial election option to purchase
shares.
1998 DIRECTORS' PLAN(1)
<TABLE>
<CAPTION>
EXERCISE PRICE NUMBER
NAME AND POSITION (PER SHARE) OF SHARES
----------------- -------------- ---------
<S> <C> <C>
All current Directors who are not executive officers as a Fair Market value on
group (5 persons)......................................... date of grant 40,000
</TABLE>
- ---------------
(1) The grant of options under the 1998 Directors' Plan is not discretionary.
The exercise price of options to be granted in the future under the 1998
Directors' Plan is unknown, as the exercise price is equal to fair market
value on the date of grant.
Proposed Adoption of the 1998 Directors' Plan. At the Meeting, stockholders
will be asked to adopt the 1998 Directors' Plan and to reserve 135,000 shares
for issuance thereunder. No options have to date been granted on the basis of
such proposed adoption. If the stockholders approve the 1998 Directors' Plan,
the current Directors' Plan, which currently has 135,113 shares available for
grant, will be retired and no further options will be granted pursuant to such
plan.
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 five times (July 1992, July 1993, July 1994, August 1995 and August
1997) 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 (650) 571-7171.
Purpose. The purpose of the Purchase Plan is to provide employees of the
Company with a convenient means of acquiring equity in the Company through
payroll deductions and to provide an incentive for continued employment.
Administration. The Purchase Plan may be administered by the Board or by a
committee appointed by the Board. References herein to the "Committee" shall
refer to the Board or the committee, as applicable, unless the context otherwise
requires. The Purchase Plan is currently administered by the Board. The
interpretation or construction by the Committee of any provision of the Purchase
Plan or of any award granted under it is final and binding on all participating
employees.
Eligibility. All employees of the Company (including Directors who are
employees), or any parent or subsidiary thereof (as defined in the Purchase
Plan), are eligible to participate in the Purchase Plan except the following:
(i) employees who are not employed by the Company (or any parent or subsidiary)
on the 15th day of the month before the beginning of an Offering Period (as
defined below); (ii) employees who are customarily employed for less than 20
hours per week; (iii) employees who are customarily employed for less than 5
months in a calendar year; and (iv) employees who, pursuant to Section 424(d) of
the Code, own or hold options to purchase or who, as a result of participation
in the Purchase Plan, would own stock or hold options to purchase stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or any parent or subsidiary. At the last reported
headcount on May 22, 1998, approximately 2,000 employees were eligible to
participate in the Purchase Plan.
19
<PAGE> 22
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 22, 1998, the closing bid price
of the Company's common stock was $44.875.
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
20
<PAGE> 23
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 of 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.
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
--------------------------------------------------
2/28/97 THROUGH 8/28/97 8/29/97 THROUGH 2/26/98
----------------------- -----------------------
PURCHASE NUMBER PURCHASE NUMBER
NAME OF INDIVIDUAL OR NUMBER IN GROUP PRICE(1) OF SHARES PRICE(1) OF SHARES
------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Lawrence F. Probst III............................ $26.1375 67 $26.1906 398
John Riccitiello.................................. 0 0 0 0
Don Mattrick...................................... 0 0 0 0
E. Stanton McKee, Jr.............................. 0 0 26.1906 261
Nancy L. Smith.................................... 26.1375 328 26.1906 570
All Executive Officers as a group (9 persons)..... 26.1375 1,273 26.1906 2,547
</TABLE>
- ---------------
(1) Purchase price depends on the specific purchase period (as defined in the
Purchase Plan) in which an individual is enrolled.
21
<PAGE> 24
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 1,150,000 shares to
1,250,000 shares.
CERTAIN TRANSACTIONS
From April 1, 1997 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 Plans" 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 John Riccitiello, President and
Chief Operating Officer of the Company ("Mr. Riccitiello") dated October 13,
1997 (the "Lease") in connection with Mr. Riccitiello's becoming employed by the
Company and his relocation to California from Illinois, the Company leased a
residence (the "Property") to Mr. Riccitiello in Woodside, California. The Lease
is for a five year term (the "Term") and provides for monthly payments of $7,500
by Mr. Riccitiello to the Company. Mr. Riccitiello is responsible for all
maintenance, and the Company is responsible for taxes and insurance for the
Property. Mr. Riccitiello has an option to purchase the Property at the
Company's acquisition cost plus the costs of improvements made by the Company.
PROPOSAL NO. 6 -- 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 from
fiscal 1987 through fiscal 1998. 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 1999 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's 1999 Annual Meeting of stockholders must
be received by the Company by March 30, 1999.
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 (10%) 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.
22
<PAGE> 25
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 (10%) stockholders complied with all Section 16(a)
filing requirements during the fiscal year ended March 27, 1998.
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
ELECTRONIC ARTS INC.
PROXY FOR 1998 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 1998 Annual Meeting of Stockholders of the
Company to be held at the Company headquarters, 1450 Fashion Island Boulevard,
San Mateo, California on July 30, 1998, at 2:00 p.m., and at any adjournment
thereof, and to vote all shares the undersigned would be entitled to vote if
personally present at the meeting on the following matters:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for the
(except as marked to the contrary nominees listed below
below)
Nominees: M. Richard Asher, William J. Byron, Daniel H. Case III, Gary M. Kusin,
Timothy Mott, Lawrence F. Probst III
</TABLE>
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line:
-----------------------------------------------------------------------------
2. ADOPTION OF THE 1998 DIRECTORS' STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENTS TO THE 1991 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. 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 5.
(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 5.
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.
The undersigned hereby acknowledges receipt of (a) the Notice of 1998 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, 1998.
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.
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:
----------------------------------,
1998
